That $1,200 stimulus check was nice, but it’s an open question whether Americans will see another federal coronavirus stimulus payment or any more direct government relief. If your small business is scrounging for savings wherever you can find them, though, you may find some unexpected financial bonuses just by preparing your taxes.
Yes, you still have to file your taxes. Tax Day was delayed until July 15 this year in response to the pandemic, but that date is fast approaching. To complicate matters, you’ll have to navigate some new changes to the small business tax code this year.
But some of those changes can save you thousands of dollars, as the IRS has introduced a new set of COVID-19 tax credits. Some of these credits are designed more for your employees who’ve had to take sick leave or time off to care for their families. But others are targeted directly to business owners and provide generous relief to businesses that have lost revenue under the coronavirus downturn.
But the same credit is available on your taxes even if you didn’t get a PPP loan. You can get an Employee Retention Credit of as much as a $5,000 credit for each employee you kept on. In some cases, you can even get the credit in the form of an advance check if you can prove that you qualify.
Like anything with taxes, the details are pretty complicated. The credits can be as much as $5,000 per employee, or in the complex language of the IRS, “50% of up to $10,000 in qualified wages (including health plan expenses).” The credit can only apply to wages you’ve paid during this specific economic downturn, between March 12, 2020, and January 1, 2021. And you have to prove your business has indeed suffered losses during COVID-19, either because of government shutdowns or a steep drop in business, which the IRS defines as “the employer’s gross receipts are less than 50% of its gross receipts for the same calendar quarter in 2019.”
Did any of your employees take sick leave during COVID-19 or have to take time off to care for family or suddenly not-in-school children? You can get a tax credit for any time off for which you paid them. Like the Employee Retention Credit, this credit only applies to the pandemic period. But the dates are slightly different for this tax credit and applies to sick leave or family care time off taken between April 1, 2020, and December 31, 2020.
The catch on the sick leave credit is that it does specifically have to be a COVID-19 infection. The IRS says the credit can only be used in cases where the employee “is unable to work because of a coronavirus quarantine, including telework, or the employee has COVID-19 symptoms and is seeking a medical diagnosis.”
The same goes for family member care—that credit can only be used if an employee was “unable to work due to caring for someone with coronavirus.” But the daycare and school closure is much broader and covers time taken off for any school or childcare facility that’s been closed during the stay-at-home orders.
The size of the credit you can claim here varies pretty wildly, with just a $2,000 limit on the family medical care credit but up to $10,000 on the childcare credit. So claiming this credit will involve significant tax preparation tedium. But it can also represent immediate money, as this credit can be issued to you as a paper check. If you can prove that you’re eligible for the tax credits, the IRS will send you a check after you fill out Form 7200.
Many of these tax credits are designed more for your employees than the business owner. These include credits for sick and family leave, for caring for someone with coronavirus, and for caring for children due to daycare or school closure. If you or your employees want to know more about taking advantage of these, check out the IRS’s new coronavirus tax credits page.
It’s now crunch time on your delayed tax filing obligations, and the last minute is almost here. But these tax credits are a nice incentive to get those taxes filed, and you might even get a generous check from the government even if you were denied COVID-19 stimulus relief.