The COVID-19 crisis has hit many US small businesses hard, but with an estimated $5 trillion being set aside for financial relief schemes, no one has to struggle through the coming months alone.
Under Joe Biden’s leadership, the government stimulus programs have focused on tax breaks for the year 2021, but there are other sources of funding that can deliver additional support when it’s needed. Along with these smaller county resources, five federal schemes are open to small businesses across the US. Not all companies will be eligible for every scheme, so take the time to review what you’ve spent over the lockdown period and find out whether you can make a claim.
The carryback of losses scheme
A tax benefit born as part of the Cares Act, this scheme is aimed at companies that made a loss in 2018, 2019 or 2020. It represents a huge change in standard tax rules and is a one-time-only offer allowing employers to carry back losses they have experienced. Essentially, companies that have previously paid tax can use their losses to reduce the amount they owe in 2021 and many could be due money back. Businesses that have recorded a loss in any of the qualifying years should act fast to be included in the refunding process. Once a corporate return is filed, it could be around six weeks until the funds are released. To maintain a beneficial tax rate in future, speak to the experts at Capital Preservation Services. They assist employers with financial planning and suggest legal tax strategies to significantly lower your annual bill.
Families First Coronavirus Response Act tax relief
Recently amended as part of the Tax Relief Act of 2020, the Families First Coronavirus Response Act gives small to medium-sized businesses another way of recouping losses related to COVID-19. This tax credit is designed to cover the costs of employee sick pay and family leave when it has been taken as a result of the pandemic. The refund matches exactly what employers were obliged to pay out to comply with the initial FFCRA. Staff were able to take up to 80 hours of paid time off to care for others, or themselves. Business owners can claim a rebate on their payroll tax return depending on what they had to payout. This credit is available until September 2021, although compliance with the FFCRA is voluntary.
Continuation of Health Coverage tax credit
Created as part of many new stimulus plans, COBRA or the Continuation of Health Coverage is a federal law that provides employers with tax credits for the health plans of their employees. Currently, employers must enroll staff in their corporate plan when they have lost their health plan or a group health plan because of a reduction in their working hours or losing their job. This is to ensure people still have access to healthcare insurance when they are no longer working due to COVID-19. Employers will be able to claim during the six months between April and September 2021, assuming they support previous employees by covering their health insurance premiums. Business owners can find out more and claim by speaking with their designated COBRA administrators.
Work Opportunity tax credit provisions
Just like choosing when to invest cash, choosing when to invest in new employees is a big step. However, as the economy moves into a more stable position, a new tax credit delivered to companies that are hiring is being extended until 2025. The Work Opportunity tax credit provides a credit on the tax of employers who hire a person who was on welfare or unemployed for over six months or is a veteran.
Employee Retention tax credits
Employee Retention Credit or ERC encourages business owners to hang on to their team for the duration of the pandemic and can be claimed until December 31st 2021. The tax credit matches up to 70% of wages paid to employees and the maximum that can be claimed for each employee is $28,000, or $7,000 per quarter. The first step toward making a claim is proving your eligibility. These credits are available to companies that have been forced to close entirely or partially, or those which have seen their revenue decline by over 20% in the quarter they are claiming for – compared to the same quarter in 2019. If the amount that can be claimed is larger than the tax owed, the business will be reimbursed in cash.
Small businesses have not been left high and dry by the Biden administration, but if you’ve been affected by the ongoing pandemic, you’ll need to be proactive in seeking help. Many of these tax breaks and cashback schemes have a limited shelf life, so start researching what’s available soon or speak with your tax advisor for more information.