WHAT TO DO IF YOU CANNOT PAY YOUR EMPLOYMENT TAXES BECAUSE COVID-19 HAS ADVERSELY AFFECTED YOUR BUSINESS

On: October 28, 2020

The mandatory closings and other restrictions imposed by governments from COVID-19 have adversely affected many businesses.  One such adverse effect is that businesses may be unable to pay their employment taxes.

What can businesses do if they cannot pay their employment taxes because of COVID-19?

The passage by Congress of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), signed into law by President Trump on March 27, 2020, has provided some assistance for businesses to help pay their employment tax obligations.

Deferral Of Payment Of Employment Taxes

Under Section 2302 of the CARES Act, the payment of certain employment taxes may be deferred.

Specifically, businesses may defer payment of their share of Social Security taxes that would otherwise be due during the period from March 27, 2020 through December 31, 2020.  This deferred amount of employment taxes is instead payable 50 percent by December 31, 2021 and 50 percent by December 31, 2022.

This deferral provision only applies to the business’ share of Social Security taxes.  It does not apply to either the employee’s share of Social Security taxes or the business’ share of Medicare taxes.

Both employers and self-employed individuals can take advantage of this deferral provision.

Based on a subsequent amendment to the CARES Act, businesses can now both defer payment of employment taxes as described above and receive forgiveness of indebtedness on a loan under the popular “Paycheck Protection Program”.

Use Of Employee Retention Tax Credits To Pay Employment Taxes

Under Section 2301 of the CARES Act, a certain employee retention tax credit may be used to pay employment taxes.

Specifically, businesses that experience either (a) a full or partial suspension of operations by government order due to COVID-19 during any calendar quarter in 2020, or (b) a decline of 50 percent in gross receipts during any calendar quarter in 2020 relative to the same calendar quarter in 2019, generally can receive an employee retention tax credit.

The employee retention tax credit is generally equal to 50 percent of up to $10,000 in wages paid to a full-time employee for all eligible calendar quarters beginning March 13, 2020 and ending December 31, 2020.  Thus, the maximum credit is $5,000 per full-time employee.

Self-employed individuals and businesses who receive “Paycheck Protection Program” loans are ineligible to claim employee retention tax credits.

The employee retention tax credit can be used to offset, and thereby in effect pay, applicable employment taxes.

In addition, on Form 7200, “Advance Payment of Employer Credits Due to COVID-19”, because the employee retention tax credit is refundable, a business can receive a current advance payment of the excess amount of the credit if the credit exceeds the amount of applicable employment taxes.

The tax credit for qualified paid sick leave and family leave wages generally can be used in a similar manner (but on different wages).

While the above-described provisions can help businesses better deal with Federal employment tax issues, a business may also be subject to state employment tax issues and should consult with its applicable state tax authority on this issue.

If you need tax help, always make sure to call Leading Tax Group and don’t attempt to do it yourself.