On Friday, March 27, 2020, the President signed into law H.R. 748 (https://www.congress.gov/116/bills/hr748/BILLS-116hr748enr.pdf), the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. Iowa State University’s Center for Agricultural Law and Taxation has detailed a number of relief provisions under the CARES act, including tax provisions, designed to sustain Americans during the COVID-19 health and economic crisis.
This post provides an overview of key business tax provisions implemented by the law. A separate post looks at individual tax provisions and the Paycheck Protection Program (PPP).
Employee Retention Credit
If you have employees, a provision of the CARES Act may provide some relief. Employee Retention Credit allows people to receive up to a $5,000 credit per employee that they retain on their payroll through this COVID-19 crisis. If you receive a loan under the Paycheck Protection Program (PPP), you are not eligible for this credit as they are mutually exclusive. If you are not eligible for PPP, this is another option for individuals and businesses that employ others.
The Employee Retention Credit is a refundable payroll tax credit that results in more money back than what your payroll taxes will be. This credit may not be beneficial to all farmers, as you need to show that your business was fully or partially suspended during the calendar quarter that you are applying for the credit or that the employer showed a “significant decline in gross receipts.” Please contact your tax accountant for more information and to determine if you qualify for this credit.
Section 2302 of the CARES Act allows employers to temporarily defer payment of the employer’s portion of the social security and RRTA payroll taxes (6.2%). It also provides the same opportunity to self-employed individuals for half of the self-employment tax. The requirement to deposit these taxes is delayed through the end of 2020. However, the delayed taxes must be repaid in two equal installments. Farmers should use caution with this deferral. You may be setting yourself for two balloon payments – one payment in December 31, 2021 and the other payment due by December 31, 2022.
You cannot take advantage of this provision if you receive a positive decision on PPP loan forgiveness. If you receive a PPP loan, you can still take advantage and defer payment. Once you receive notification from your lender that your PPP loan has been forgiven, you may no longer defer payroll taxes.
Certain businesses might be able to take advantage, though farmers already struggling may not be able to take on additional obligations that are due later on. Talk with your tax professional on this deferral and the additional paperwork that will be required.
More information on business tax provisions under the CARES Act can be found on the Center for Agricultural Law and Taxation website (https://www.calt.iastate.edu/blogpost/whats-cares-act-part-two-business-tax-provisions).