Staying Fit
Two new tax credits can offer a welcome boost to small businesses that have been struggling to navigate the coronavirus pandemic. The credits can offset financial losses from government-ordered temporary shutdowns due to COVID-19 and the money employers used to pay for new employee sick leave and family medical leave benefits.
AARP Membership— $12 for your first year when you sign up for Automatic Renewal
Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine.
The Paycheck Protection Program — the forgivable loan program that lawmakers created for small businesses — has monopolized most of the attention about new assistance to entrepreneurs who are struggling to stay afloat. But the stimulus laws enacted this year also created credits that businesses can claim on their 2020 taxes. Unlike tax deductions, which reduce taxable income, tax credits reduce a company's tax bill dollar for dollar.
The IRS recently released new guidance about these credits. To be eligible to claim them, employers must have either partially or fully shut down because of a government order due to COVID-19 or experienced a significant decline in gross receipts in a calendar quarter when compared to last year.
Here's more about what you should know about the tax credits:
Credits for offering paid sick leave or family medical leave
To deter people from going to work when they may have symptoms of COVID-19, lawmakers created paid sick and family medical leave benefits this year for people who previously did not have access to them. Employers who paid workers these new benefits can recover those costs by claiming one of the new tax credits.
Small businesses and other employers can receive a credit for the full amount of the newly required sick leave and family leave, plus any related health plan expenses and the employer's share of Medicare tax on the leave, for the period of April 1 through Dec. 31, 2020. The refundable credit is applied against certain employment taxes on wages employers are required to pay on all employees. ("Refundable” means that you'll get the full amount of the credit, even if you owe no taxes.)
