The COVID-19 pandemic affected businesses in every sector. Employers had to navigate a world where workers couldn’t come into work and many were falling ill.
Businesses dealt with mandated closures, shortage supplies, and demand declines. The government took swift action and passed acts to help businesses and citizens during this difficult time. The CARES Act offers many tax breaks for businesses.
Keep reading to learn more about the CARES Act tax benefits for businesses.
What Is the CARES Act?
In March of 2020, the government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. It was to help US citizens to navigate the impact of the COVID-19 pandemic.
In 2021, Congress passed the Consolidated Appropriations Act to offer further help.
The US government passed these acts to allow citizens to stay in their jobs during this crisis. It was a $2.2 trillion bill created to mitigate the impact on businesses through:
- Modifications
- Credits
- Tax law changes
Below, you’ll find 5 CARES Act tax breaks available to businesses in more detail.
Tax Break 1: Losses
The CARES Act includes provisions about business losses. The pandemic caused many companies to lose revenue. These credits help offset business losses.
Net Operating Losses
This deduction is generally for small business owners.
- Net operating losses from 2018, 2019, and 2020 can be carried back five years.
- Losses from 2018 to 2021 can fully offset taxable income for businesses.
Previously, there was an 80% limitation on taxable income deduction. This limitation applies for tax years after 12/31/2020.
Excess Business Losses
The CARES Act removed limitations on excess business losses. This is for non-corporate businesses, such as sole proprietors.
This is for tax years from 1/1/2017 to 1/1/2021.
Tax Break 2: Business Interest Expenses
The CARES Act increased the business interest deduction amount to 50% for the 2019 and 2020 tax years.
Partnerships can only claim a 30% business interest deduction.
Tax Break 3: Payroll Tax Payment Deferment
You can defer payroll taxes with the CARES Act. This change allows employers longer time to pay social security taxes they owe for employees.
This is available for businesses that had to suspend (fully or partially) operations during the pandemic. Or if your sales decreased by 50% or more.
The payroll taxes due from March 2020 and December 2020 are now due by the end of 2022. 50% is due in 2021 and the other 50% is in 2022.
Businesses are still required to submit the social security taxes paid by each employee during this time. Failure to deposit payroll tax fees are waived for employers for the applicable years.
Read more about COVID-19 relief packages and how to apply for your business.
Tax Break 4: Sick and Family Leave Credit
There are credits for employees who had to take off work due to quarantine. It also applies if they were caring for someone who was sick with COVID-19. This credit is also for employees who had to take off work due to school closures.
- Employees get 80 hours of paid sick leave with the CARES Act.
- If an employee is caring for a child with school closure, they get two-thirds of their pay.
- Up to 10 weeks of leave can be claimed with this credit.
- Paid emergency family leave is capped at $200 per day ($10,000 total) for each employee.
- Paid sick leave is capped at $511 per day ($5,110 total) per employee.
As an employer, you can claim a tax credit for the full amount of paid sick leave. This can include related health plan expenses and your share of Medicare tax during the leave period. This is a refundable credit.
Tax Break 5: Employee Retention Credit (ERC)
Employers with partial or fully suspended operations due to COVID-19 can claim the Employee Retention Credit.
- This credit is for wages paid from 3/12/20 and 1/1/2021.
- With this credit, you can claim 50% of $10,000 in qualified wages paid per quarter.
- The amount was upped to 70% for 2021 per $10,000 in qualified wages paid per quarter.
- This is a refundable credit and is capped at $5,000 per employee.
This credit applies to any size business that has a 50% or more loss on gross sales.
If you are ready to apply for the credit but are unsure how to do it, check out this blog post for more information.
Apply for CARES Act Tax Benefits for Businesses
Before applying for any tax breaks, it’s important you understand exactly what you are eligible for and what qualifies. You should review the application requirements and ensure you meet any deadlines associated.
As with any tax filing, you should consult a professional for guidance. You will have to submit many applications if you own more than one business.
It may seem like a lot of rules, but it’s worth it to understand the eligibility requirements and apply for the credit if your business can.
You can always ask for help if you don’t understand something. Or if it all seems too overwhelming.
Get Started Today
Do you think your business will benefit from one or more of the above tax breaks? Do you have more questions and need guidance on how to claim these benefits?
There is help available to help you understand how the CARES Act tax benefits for businesses can help your organization. You can even get help with your application to make sure you file everything correctly.
ERC Today offers tax consulting and filing options for businesses. The credits available to businesses can make a big impact and we’re ready to help you!
Contact ERC Today to learn more about the Employee Retention Credit. You can also ask any questions you may have to be prepared for this tax season.
Cares Act Tax Benefits for Businesses FAQs
What are the key components of the CARES Act for businesses?
The CARES Act provides modifications, credits, and tax law changes to mitigate the impact of the pandemic on businesses.
How does the CARES Act help businesses with losses?
The CARES Act includes provisions to offset business losses, such as carrying back net operating losses for five years and removing limitations on excess business losses for non-corporate businesses.
What is the business interest expense deduction under the CARES Act?
The CARES Act increased the business interest deduction amount to 50% for the 2019 and 2020 tax years, with partnerships eligible for a 30% deduction.
How does the CARES Act defer payroll tax payments for businesses?
The CARES Act allows businesses that had to suspend operations or experienced a sales decrease of 50% or more during the pandemic to defer payroll taxes due from March 2020 to December 2020. These deferred taxes are due by the end of 2022, with 50% due in 2021 and the remaining 50% in 2022.
What are the credits available for employees under the CARES Act?
The CARES Act provides credits for employees who had to take sick leave, care for someone with COVID-19, or deal with school closures. The credits include paid sick leave and paid emergency family leave, and employers can claim a refundable tax credit for the full amount of paid sick leave, including related health plan expenses and Medicare tax.
How can businesses apply for the CARES Act tax benefits?
Businesses should review the application requirements, understand eligibility criteria, and meet any associated deadlines. It’s advisable to consult a professional for guidance during the application process.
Are there any limitations on claiming the tax breaks under the CARES Act?
Yes, certain tax breaks have specific limitations, such as the timeframe for carrying back net operating losses and the maximum amount of wages eligible for the Employee Retention Credit.
