Businesses throughout the nation are struggling as we navigate the current coronavirus pandemic. The Internal Revenue Service (IRS) has made some changes in an effort to help keep many of these businesses afloat.
One recent example involves two new refundable payroll tax credits.
What are these credits? The IRS has allowed small and mid-size businesses to claim the paid sick leave credit and the paid family eave credit.
What businesses qualify? According to the IRS, any business with fewer than 500 employees.
What does this mean? The paid sick leave credit allows employees to receive 80 hours of sick leave when caring for an ill relative. The paid family leave allows up to 10 weeks of leave when a child’s school or daycare center is closed. The agency has opened up these credits to apply for those who are facing these situations due to COVID-19 in the hopes it will allow employers to keep employees on their payroll and reduce the need for additional layoffs.
As a result of the IRS’ announcement, employers of qualifying businesses can receive full reimbursement for employees who take this leave.
How does it work? The IRS states this will open up funds for businesses by allowing businesses to use the money that it would otherwise set aside to pay the government for payroll taxes.
Take, for example, a small business owner who paid $10,000 in sick leave and needed to deposit $8,000 in payroll taxes. The employer can use the $8,000 to make qualified leave payments. They can then request the additional $2,000 needed by filing out Form 7200, Advance Payment of Employer Credits Due to COVID-19.