Client Alert: Tax Implications of Coronavirus Pandemic
Whether your organization has applied for a loan under the Paycheck Protection Program (“PPP”) made available under the Coronavirus Aid, Relief, and Economic Securities Act (“CARES”) or not, you should be aware of tax relief that may be available to you. Tax relief may be available under CARES, The Families First Coronavirus Response Act (the "FFCRA"), and/or recent IRS pronouncements.
Below is a summary of some of the tax relief opportunities that may be available to your organization.
Employer Retention Credit
CARES provides the opportunity for an Employee Retention Credit (ERC) of 50% of qualifying wages up to $10,000 paid between 3/12/20 and 12/31/20. This credit is available only to businesses that were fully or partially closed or have lost 50% of year over year revenue due to COVID-19. The credit can be taken by means of a reduction in required deposits for payroll taxes. Form 7200 can be filed to claim the credit if the employer’s tax deposits are not sufficient to cover the credit. The credit cannot be claimed by recipients of PPP loans.
Postponement of Payroll Taxes
The CARES Act allows employers to postpone their 2020 employer portion of payroll taxes through the end of 2022. 50% must be paid by December 31, 2021, and the remaining amounts must be paid by December 31, 2022. The postponement may not be elected by recipients of PPP.
While there is not personal liability for the employer portion of payroll taxes, we urge caution in making a decision to defer these taxes, given the downstream risks of non-payment. Such a deferral may also violate loan covenants against incurring debt.
The Families First Coronavirus Response Act ("FFCRA"), signed by President Trump on March 18, 2020, provides small and midsize employers with fewer than 500 employees refundable tax credits that reimburse them, dollar-for-dollar, for the cost of providing to their employees COVID-19 related paid sick and family leave wages. The covered period is April 1, 2020, to December 31, 2020. The credit is allowed against payroll taxes on all wages and compensation paid to all employees. If the amount of the credit exceeds the federal employment taxes, then the excess is treated as an overpayment and refunded to the employer. Form 7200 is used for this purpose. The IRS states that it will process Form 7200 within two weeks. The FFCRA and the ERC credits may not be taken on the same wages, nor can debt forgiveness under the PPP program be claimed on the wages for which FFCRA credits were claimed.
Extension of Deadline Non-Profit Executive Compensation Taxes
Section 4960, the non-profit executive compensation tax, was included in the tax delays announced by IRS in Notice 2020-23
. Tax returns and payments for tax-exempt organizations due between April and June are postponed until July 15, 2020.
Extension of Form 990 Deadlines
The extension of time provided in Notice 2020-23
also covers Form 990 series returns (including 990-T) with due dates between April and June. These are postponed until July 15, 2020.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.