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CARES Act: Payroll Tax Benefits

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Vikram Agarwal
April 1, 2020

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) became law in the United States. Among other things, the CARES Act provides relief to certain businesses in the form of payroll tax credits and deferrals.

It is very important to note that the following benefits are not available to employers receiving Small Business Interruption Loans administered by the SBA “paycheck protection loans” through what the CARES Act calls the Paycheck Protection Program, as my colleagues discussed here. Please check back for our next post which will dive into how to decide between the Paycheck Protection Program or the payroll tax benefits discussed below.

Employee retention credit for employers

Eligible employers can qualify for a refundable credit against, generally, the employer's 6.2% portion of the Social Security (OASDI) payroll tax or against the Railroad Retirement tax for 50% of certain wages (described below) paid to employees during the COVID-19 crisis. 

The credit is available to employers carrying on business during 2020, including non-profits (but not government entities), whose operations for a calendar quarter have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also available to employers who have experienced a more than 50% reduction in quarterly receipts.

For employers with more than 100 employees in 2019, the eligible wages are wages of employees who aren't providing services because of the business suspension or reduction in gross receipts described above.

For employers with 100 or fewer full-time employees in 2019, all employee wages are eligible, even if employees haven't been prevented from providing services. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in eligible wages and compensation paid by the employer to an employee. Thus, the credit is a maximum $5,000 per employee. 

Generally, wages taken into account for purposes of the payroll credits provided by the Families First Coronavirus Response Act for required paid sick leave or required paid family leave, (discussed here) are not included as eligible wages. The credit is provided for wages paid after March 12, 2020 through December 31, 2020.

Delayed payment of employer payroll taxes

Taxpayers (including self-employed individuals) will be able to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Taxes that can be deferred include the 6.2% employer portion of the Social Security (OASDI) payroll tax and the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer 6.2% Social Security (OASDI) rate). For self-employed individuals, the deferral applies to 50% of the Self-Employment Contributions Act tax liability (including any related estimated tax liability).

Bean Kinney and Korman tax and lending attorneys are available to answer any questions you may have about this or the Paycheck Protection Program.