Payroll Tax Delay for Coronavirus-Impacted Businesses

As COVID-19 cases continue to rise in the U.S., countless Americans are taking advantage of coronavirus crisis government help. The Coronavirus Aid, Relief, and Economic Security (CARES) Act includes several laws that present expanded unemployment benefits, student loan relief programs, mortgage and rent relief and stimulus checks. But the CARES Act also features multiple provisions providing tax relief to businesses. Among these are a refundable tax credit and the option to defer payroll taxes. Below, we discuss the payroll tax provisions and show you who qualifies.

Many Americans are also consulting their financial advisors to combat a possible recession. If you’d like to find the right professional, our free tool will connect you with up to three expert advisors in your area.

What Is Payroll Tax?

Both the federal government and some states collect payroll taxes, and the tax is based on employees’ tips, wages or salaries. These taxes are then used by the government to finance programs like Social Security and Medicare. Employers deduct these taxes from their employees’ overall earnings and pay them to the IRS.

Payroll taxes are typically divided into the four following categories: federal income, Medicare, Social Security and federal unemployment. The Federal Insurance Contributions Act (FICA) tax includes the Medicare and Social Security programs. For Social Security, employees pay 6.2%, and they pay 1.45% for Medicare. Self-employed individuals, however, pay 15.3% as FICA tax.

Coronavirus Payroll Tax Delay: How Does It Work?

The CARES Act allows employers to postpone their 2020 payroll taxes through the end of 2022. Self-employed individuals can also delay the tax payment (see a list of eligible self-employed individuals here). Under the provision, employers can now pay 50% by December 31, 2021, and they must pay the remaining amounts by December 31, 2022. Taxes that employers can postpone include Railroad Retirement Taxes, the employer portion of FICA taxes and half of the SECA tax.

All employers can take advantage of this deferral, even if they haven’t been impacted by COVID-19. But employers won’t be eligible if they receive a loan under the Small Business Administration’s Paycheck Protection Program. Employers using the Paycheck Protection Program may want to consider other options of coronavirus relief for businesses.

Alternative Forms of Coronavirus Tax Relief 

The CARES Act also offers employers the Employee Retention Credit — a refundable payroll tax credit that strives to help employers keep employees on their payroll, according to the IRS. The tax credit is equal to 50% of the first $10,000 of qualified wages that employers pay their employees. This means that the maximum credit for qualified wages paid to an employee is $5,000. It is important to note that the retention credit only applies to qualified wages paid after March 12, 2020 and before January 1, 2021. But which employers are eligible? Under the provision, eligible employers must maintain a business or trade during the 2020 calendar year that either:

• Fully or partially suspends operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or

• Experiences a significant decline in gross receipts during the calendar quarter

For qualified wages, the rules of the provision vary depending on the number of employees an employer has. For instance, an employer with more than 100 full-time employees can pay an employee qualified wages for the time the employee is not providing service due to either of the following reasons: (1) a full or partial suspension of operations by order of a governmental authority due to COVID-19 or (2) a significant decline in gross receipts. But for eligible employers with fewer than 100 full-time employees in 2019, all employees are eligible.

Coronavirus Stimulus Checks

While you’ll likely qualify for the payroll tax deferral, all employees won’t qualify for the Employee Retention Credit. Government employees and self-employed individuals aren’t eligible. However, the federal government’s coronavirus stimulus package offers most tax payers financial relief in navigating the economic climate. The CARES Act provides direct cash payments for eligible tax filers according to adjusted gross income (AGI).

The stimulus checks range up to $1,200 for individuals and heads of households and $2,400 for couples, and the check amounts decrease and phase out as AGI increases. For instance, high earners making more than $99,000 (for individuals) aren’t eligible to receive a check. And married couples with an AGI of more than $198,000 won’t receive a check either. Here is where the most and fewest people will benefit from the COVID-19 stimulus checks.

Bottom Line

If you’re an employer or if you work for yourself, you’ll have the option to defer your taxes through the end of 2022, unless you choose to pay as usual. The CARES Act allows you to both postpone and split the payroll tax into equal payments of the course of two years. Even if you haven’t been adversely impacted by the coronavirus, such forms of relief are worth considering. As the country works to avoid a recession, both individuals and businesses can take many measures to ensure their financial security.

Tips for Managing Finances During Times of Crisis

• The government’s coronavirus economic support includes paid sick leave, business interruption insurance, a tax deadline extension and many other forms of aid for individuals and businesses. But to steer the country against a recession, many Americans will also receive stimulus checks, regardless of whether COVID-19 has impacted them directly. Our coronavirus stimulus check calculator can help you determine how much you may receive in April.

• Several other establishments are providing relief to individuals and businesses who’ve sustained financial loss because of coronavirus. See our full list of companies helping coronavirus-impacted people.

• A financial advisor can help you protect your assets both in times of certainty and uncertainty. Our free tool matches you with up to three advisors in your area. You’ll just need to complete a short questionnaire, and the tool will do the rest.

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