April 28, 2020
Stephen A. Sherman
Of Counsel, Stoll Keenon Ogden PLLC
The new CARES Act provides employers with several options to alleviate financial burdens incurred during the time of the COVID-19 pandemic. Although they may all be appealing, not all of the options can be taken together, and an employer must strategically plan which will be taken.
The item which is likely receiving the most attention are the expanded loans administered by the Small Business Administration. Not only are many employers eligible to receive these loans to keep their businesses solvent, some of the loans when used for appropriate purposes are forgivable and are essentially converted in grants. More details on these loans can be found in prior SKO Insider publications.
Additionally, the CARES Act created tax credits for employers who retain employees during the COVID-19 crisis. It is essentially a refundable tax credit of up to 50 percent of the wages paid by an employer to a qualifying employee affected by COVID-19. More details on these credits can be found in prior SKO Insider publications.
The CARES Act also allows an employer under certain scenarios to defer the payment of the employer portion of the payroll tax for their employees. Half of the deferred tax will be owed December 31, 2021 and the remainder will be owed December 31, 2022. This allows the employer to retain those funds for an additional time to pay expenses, though the taxes will still be owed. More details on the tax deferral can be found in prior SKO Insider publications.
Although these benefits under the Act are all appealing, they may not all be claimed together, and some are mutually exclusive:
• If an employer receives an SBA Loan under the CARES Act (whether or not it is forgiven), that employer cannot claim the employee retention tax credit (CARES Act § 2301(j)).
• The reverse is true and an employer who claims the employee retention tax credit cannot receive an SBA Loan under the CARES Act. However, employers should be aware that if they claim the employee retention credits, the employer cannot claim the same employees under the existing Work Opportunity Tax Credit. (CARES Act 2301(h)(1)).
• If an employer receives an SBA Loan which is forgiven under the CARES Act, that employer may not utilize the deferral of the employer portion of the payroll tax. (CARES Act § 2302(a)(3)).
An employer must consult with its business advisors, CPAs and attorneys to determine which of the new programs are available to it and which are best for that employer’s particular circumstances. There may be several options and each employer should carefully plan ahead for the best result possible.
Stoll Keenon Ogden understands that these are trying times for our clients and our country. Our firm operations have continued uninterrupted and our attorneys are equipped to serve as we always have – for over 120 years.
Our firm’s Tax practice advises businesses and individuals on all aspects of local, state and federal taxation, including tax planning, audits, administrative hearings and trials.
Please also be sure to consult the Stoll Keenon Ogden Coronavirus Resource webpage for additional articles and information related to the latest information on new laws and directives enacted by federal, state, and local governments in response to the Coronavirus pandemic.