With the PPP funds drying up, if you haven’t seen the funds yet are you feeling antsy? I don’t blame you! That money seemed to dry up pretty quickly. That means that there are millions of small business owners just like you that are scrambling to keep the doors open.
If you haven’t submitted your application with your bank or the SBA or are still waiting to hear back, I want to let you know that there are still several ways that you can get assistance from the government.
Don’t panic, start thinking strategically as a business owner for other options. What are your other options? Well let me give you some insight into your choices. The IRS has a couple of options that employers can take advantage of outside of the PPP loan and to be honest, they’re pretty great.
There is a way that a business can save $5,000 per employee under the CARES Act that has nothing to do with underwriting, paperwork or the SBA. It’s called “The Employee Retention Program” and it’s pretty cool, because you control it. I am going to go deep into this and let you know how you can start saving some money if you didn’t receive the PPP loan.
What is it?
The Employee Retention Credit is a refundable tax credit that an employer can take for wages paid from March 12, 2020 to January 1, 2021. For each employee, $10,000 in qualifying wages can be used towards the credit. The credit is for 50% of those wages and that’s how a business owner can save $5,000 per employee on this credit.
How to qualify
There are two ways a business can qualify for this credit. The first is if the business experienced a full or partial suspension of operation of their business during any calendar quarter because of government orders. The second way a business qualifies is if the business experienced a significant decline in gross receipts. The details with this one mean that the business sees a loss of at least 50% of gross income for a calendar quarter.
How to claim the credit
In order to claim the new Employee Retention Credit, eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns, which will be Form 941 for most employers, beginning with the second quarter. The credit is taken against the employer’s share of social security tax but the excess is refundable under normal procedures.
In anticipation of claiming the credit, employers can retain a corresponding amount of the employment taxes that otherwise would have been deposited, including federal income tax withholding, the employees’ share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes for all employees, up to the amount of the credit, without penalty,
There is one thing that you need to know, you are either eligible to take the PPP OR the Employee Retention Program, NOT both. That’s important because I don’t want you to get in trouble for trying to double dip.
Ok, cool, what if my business doesn’t qualify for this program? Well, there is also another option for business owners to defer payment of certain payroll tax payments.
What is it?
This option allows you to defer payments of the employer’s share of social security taxes from March 27, 2020 to December 31, 2020.
One of the cool things about this particular option is that you can use this deferral of payment even if you receive the PPP loan. However, there is some fine print to consider if an employer receives the PPP loan. An employer cannot defer payment of the employer’s share of social security tax after the employer receives a decision from the lender that the PPP loan is forgiven. Very important to remember if you’ve received the PPP loan.
How to claim it
The employer can hold onto the employer’s share of social security taxes for the period of March 27, 2020 to December 31, 2020. Also, the form 941 will be revised so that the employer can report how much money they kept and plan on paying back at a later date.
Now keep in mind that this is money you will have to pay up eventually. So let’s talk a little about the repayment schedule. Half of the money you defer will be due by December 31, 2021 and the remaining balance will be due by December 31, 2022. That’s really not so bad considering it’s kind of like receiving a loan with no interest but don’t forget about the repayment requirements. Trust me, the IRS places pretty hefty fines and penalties for late payment of payroll taxes.
Well, that about sums it up for today but hopefully that provides a little relief for those business owners that weren’t able to receive the PPP loan. Honestly, for some employers, this option will be SO much more useful than receiving the PPP loan because there isn’t a short time frame for use of the money and the employer has a little more control.