I think you will agree it’s time. It’s time for Covid-19 to jump ship and quit causing horrific devastation throughout the world. Unfortunately, that is not the case at this time as COVID-19 continues to affect all of us, even as we start the reopening of our State. As we continue to weather the storm and navigate these uncharted waters, I thought it would be good to discuss the various options that could help your businesses maintain cash flow and stay afloat.
Paycheck Protection Program (PPP)– Many of the clients that I serve have applied for and received the Paycheck Protection Program money. This is an SBA loan program to help employers keep their employees on the payroll. If the loan proceeds are used for payroll and other appropriate expenses such as rent, utilities and mortgage interest, all or a portion of the loan could be forgiven. There is a limit on the amount of funds that will be distributed to businesses so check with your bank to determine if you are eligible and if there are still funds available.
Employee Retention Credit (ERC)- This is a refundable tax credit equal to 50% of qualified wages paid to eligible employees, up to $10,000 in wages or a $5,000 credit per employee. This credit can be used immediately by reducing required payroll tax payments. If there is additional credit left over, the employer can request an advance on the credit from the IRS. To qualify for the ERC credit, an employer needs to have had a full or partial suspension of their business operation due to government orders or a significant decline in gross receipts of 50% over the prior year quarter. If the business qualifies, the credit will continue until the business has gross receipts of more than 80% of prior year quarter or the end of 2020, whichever is sooner. Note: If the business received the PPP loan, they are not eligible to receive the ERC credit.
Employee Payroll Tax Deferral- Under the CARES Act, employers can defer the deposit and payment of the employer portion of the social security taxes that would be due from March 27, 2020 to December 31, 2020. The payment of this deferral will be due as follows: 50% on December 31, 2021 and the remaining 50% on December 31, 2022. If the employer has a PPP loan, the taxes can only be deferred until the date that the PPP loan is forgiven. This deferral can help self-employed entrepreneurs as well, since 50% of self-employment taxes can be deferred until the end of 2021.
Payroll credits for Required Sick Leave– Under the Families First Coronavirus Response Act (FFCRA), if an employer is required to provide paid sick and family leave related to COVID-19, the employer will receive a refundable tax credit that will reimburse them, dollar for dollar, for the cost of this paid leave. This credit is available until December 31, 2020. An employer is required to pay an employee 80 hours of their wages if the employee is quarantined due to a COVID diagnosis, has symptoms and is seeking medical diagnosis, is advised by their doctor to self-quarantine, is caring for an individual under quarantine or self-isolation order, or is caring for a child because of a school closure or no available child care due to COVID- 19.
While it may take some time to return to a ship-shape operation, these programs can help with cash flow. It is important that you read and understand the rules related to each of these options. Note: It is not allowed to “double dip” these credits. To move forward, you will need to determine your business eligibility and which option is the best fit for you. As in any turbulent waters, it is good to have a captain at the helm of your boat and in this case, your financial advisor can assist you in navigating through these various choices – helping to keep your business afloat as we move toward calmer waters and ultimately smoother sailing for all.
A little more about us:
Located in West Des Moines, Iowa with a branch office in Winterset, Iowa, McGowen Hurst Clark Smith (MHCS) celebrates 70 years of extending excellent service to our clients, providing them with accounting, auditing, consulting and financial planning expertise.
Established in 1946, our staff has grown from 3 to 60 employees, making us large enough to provide our clients with a broad base of experience and resources, yet small enough to offer very personalized service—which we feel makes us stand apart from other CPA firms. In addition to the traditional services of Accounting, Tax Preparation, Audit and Business Consulting, MHC&S offers our clients specialized services including Estate Planning, Business Valuations, Cost Segregation Studies, Retirement Planning, QuickBooks Training, Financial Advisory Services, Fraud Detection and Deterrence, Business Succession Planning, Litigation Support and more.
MHCS is a member of CPAmerica International, Inc., a national association of accounting firms offering membership to only 90 firms throughout the United States. This association offers a wide pool of additional technical expertise to the members firms, as well as continuing professional education necessary to maintain the degree of excellence which MHCS feels is vital in today’s business environment.