Businesses that have been impacted financially by COVID-19 may be able to take advantage of a new, refundable tax credit called the Employee Retention Credit. The credit is designed to encourage businesses to keep employees on their payroll and is worth 50 percent of qualifying wages up to $10,000 that are paid by an eligible employer.

Does my business qualify for the Employee Retention Credit?

The credit is available to all qualified employers regardless of size, including tax-exempt organizations.

The credit is not available to small businesses who take small business loans or state and local governments and their instrumentalities.

What is a qualifying employer?

There are two categories of qualified employers:

• The employer’s business is fully or partially suspended by government order due to COVID-19 during a calendar quarter.

• The employer’s gross receipts are below 50 percent of the comparable quarter in 2019. Once the employer’s gross receipts go above 80 percent of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

How is the credit calculated?

The amount of the credit is 50 percent of qualifying wages paid up to $10,000 in total. Wages taken into account are not limited to cash payments, but also include a portion of the cost of employer-provided health care.

What is a qualifying wage?

Qualifying wages are wages that are based on the average number of a business’s employees in 2019. There are two different measures for business, depending on size:

Employers with less than 100 employees. If the employer had 100 or fewer employees on average in 2019, the credit is based on wages paid to all employees, regardless if they worked or not. If the employees worked full time and were paid for full-time work, the employer still receives the credit.

Employers with more than 100 employees. If the employer had more than 100 employees on average in 2019, then the credit is allowed only for wages paid to employees who did not work during the calendar quarter.

How do I receive the credit?

While many tax credits are available when filing a tax return, the employee retention credit works differently in that employers can be reimbursed immediately by reducing their required payroll tax deposits. Payroll taxes, which include federal income tax withheld as well as taxable social security wages and tips, taxable Medicare wages and tips, and additional Medicare tax withholding, are taxes that have been withheld from employees’ wages. Generally, these payroll tax deposits are filed quarterly on Form 941, Employer’s Quarterly Federal Tax Return.

When can I start reporting qualified wages?

Eligible employers should report their total qualified wages and the related health insurance costs for each quarter on Form 941 beginning with the second quarter (March 12, 2020).

Wages paid through December 31, 2020, are also eligible for the credit.

What if my payroll tax deposits are less than the credit?

If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19

Help is just a phone call away.

Please contact the office if you need more information on the Employer Retention Credit and other COVID-19 economic relief efforts.

Taxpayers should be on the lookout for calls and email phishing attempts regarding the Coronavirus, or COVID-19 that could lead to tax-related fraud and identity theft. Because criminals take every opportunity to perpetrate a fraud on unsuspecting victims during times of need, taxpayers should also be skeptical about text messages received and websites and social media attempts to request money or personal information.

Retirees Targeted

Seniors should be especially careful at this time. In most cases, the IRS will deposit economic impact payments (sometimes called recovery rebates or stimulus payments) into the direct deposit account taxpayers previously provided on tax returns and taxpayers should not provide their direct deposit or other banking information for anyone to input on their behalf into the secure portal.

For retirees, the $1,200 payments are sent automatically. There is no additional action or information is needed on their part to receive this. Retirees – including recipients of Forms SSA-1099 and RRB-1099 − should also know that they will not be contacted by the IRS via phone, email, mail or in person asking for any kind of information to complete their economic impact payment.

What to Watch Out For:

Scammers use a number of techniques including:

• Emphasizing the words “Stimulus Check” or “Stimulus Payment.” The official term is economic impact payment.
• Asking the taxpayer to sign over their economic impact payment check to them.
• Asking by phone, email, text or social media for verification of personal and/or banking information saying that the information is needed to receive or speed up their economic impact payment.
• Suggesting that they can get a tax refund or economic impact payment faster by working on the taxpayer’s behalf. This scam could be conducted by social media or even in person.
• Mailing the taxpayer, a bogus check, perhaps in an odd amount, then tell the taxpayer to call a number or verify information online in order to cash it.

Unsolicited emails, text messages or social media attempts to gather information that appear to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), should be forwarded to phishing@irs.gov.

Tax-related ID theft occurs when someone uses a taxpayer’s stolen personal information to file a tax return claiming a fraudulent refund. Thieves then use personal information like a stolen Social Security number. While the accounting profession and IRS work hard to prevent identity theft, taxpayers also play an important role.

Here are five tips to help taxpayers protect themselves against identity theft:

1. Always use security software. This software should have firewall and anti-virus protections.

2. Use strong, unique passwords. They should also consider using a password manager.

3. Learn to recognize and avoid phishing emails, threatening calls, and texts from thieves. These scammers pose as legitimate organizations such as banks, credit card companies, and even the IRS.

4. Do not click on links in unsolicited emails or messages from unknown senders. Also, people shouldn’t click on links or download attachments from emails that seem suspicious, even if they appear to be from senders they know.

5. Protect personal information and that of any dependents. For example, people shouldn’t routinely carry around their Social Security cards. They should also make sure tax records are secure.

You can use high-deductible health plans (HDHPs) to pay for 2019 Novel Coronavirus (COVID-19)-related testing and treatment, without jeopardizing their status and you may continue to contribute to a health savings account (HSA).

Health plans that otherwise qualify as HDHPs will not lose that status merely because they cover the cost of testing for or treatment of COVID-19 before plan deductibles have been met. Furthermore, as in the past, any vaccination costs continue to count as preventive care and can be paid for by an HDHP.

Finally, the CARES Act signed into law in late March of 2020, amended legislation to allow HDHPs to cover telehealth and other remote care services without charging a deductible.

Please note that this information relates only to HSA-eligible HDHPs. Employees and other taxpayers in any other type of health plan with specific questions about their plan and what it covers should contact their plan administrator.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, the stimulus bill that was signed into law on March 27, 2020, contains legislation to stabilize the economy during the coronavirus pandemic. These measures include economic recovery checks for taxpayers, as well as several other tax provisions affecting individuals.

Let’s take a look at a few of the highlights:

Economic Impact Payments

Economic impact payments “recovery checks” will be sent to taxpayers in the next three weeks and will be available throughout the rest of 2020. For most people, they will be distributed automatically and no action is required. Taxpayers might have questions about economic impact payments and answers to some of these questions are provided below.

1. Who is eligible?

Tax filers with adjusted gross income up to $75,000 for individuals and up to $150,000 for married couples filing joint returns will receive the full payment. For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible.

Eligible taxpayers who filed tax returns for either 2019 or 2018 will automatically receive an economic impact payment of up to $1,200 for individuals or $2,400 for married couples. Parents also receive $500 for each qualifying child.

2. Where will the IRS send my payment?

Most people do not need to take any action. The IRS will calculate and automatically send the economic impact payment to those eligible.

For people who have already filed their 2019 tax returns, the IRS will use this information to calculate the payment amount. For those who have not yet filed their return for 2019, the IRS will use information from their 2018 tax filing to calculate the payment. The economic impact payment will be deposited directly into the same banking account reflected on the return filed.

If the IRS does not have direct deposit information. The Get My Payment tool on IRS.gov allows taxpayers to check the status of their recovery payment. It also allows them to provide banking information once their return has been processed so that individuals can receive payments immediately as opposed to checks in the mail. Please note, however, that the Get My Payment tool does not allow people to change bank account information already on file with the IRS.

3. What if I have not filed my 2018 or 2019 tax returns yet?

Anyone with a tax filing obligation who has not yet filed a tax return for 2018 or 2019 to file as soon as they can to receive an economic impact payment and include direct deposit banking information on the return.

If you typically are not required to file a tax return. The IRS will use the information on the Form SSA-1099 or Form RRB-1099 to generate Economic Impact Payments to recipients of benefits reflected in the Form SSA-1099 or Form RRB-1099 who are not required to file a tax return and did not file a return for 2018 or 2019. Each person would receive $1,200 per person, without the additional amount for any dependents at this time and includes senior citizens, Social Security recipients (including Social Security Disability Insurance (SSDI) recipients) and railroad retirees who are not otherwise required to file a tax return.

• Social Security, Railroad retirees and SSDI who have qualifying children will need to take an additional step to receive $500 per qualifying child.
• Other individuals such as low-income workers and certain veterans and individuals with disabilities who aren’t required to file a tax return are also eligible for an Economic Impact Payment, but in some cases, may need to file a tax return.

Early Withdrawals from Retirement Plans

Taxpayers affected by the coronavirus are able to withdraw up to $100,000 and will not be subject to the 10 percent penalty for early withdrawals. Distributions can be taken through December 31, 2020. The amount withdrawn is considered income, however, and taxpayers have three years to pay the tax on the additional income and replace the funds in-kind. If you need to withdraw funds from a retirement plan, please call a tax and accounting professional to discuss how it could impact your financial situation.

Eligible taxpayer. Anyone who has been diagnosed with SARS-CoV-2 virus or COVID-19 disease or whose spouse or dependent has been diagnosed with the same. In addition, any taxpayer experiencing financial hardship from any of the following situations:

• Quarantined
• Furloughed
• Laid off
• Work hours reduced
• Unable to work due to lack of child care

Required Minimum Distributions (RMDs)

Required minimum distributions are suspended for tax year 2020.

Charitable Deductions

For tax year 2020, there is now an above-the-line charitable deduction of up to $300. In addition, the limitation on adjusted gross income (AGI) for charitable contributions (2020 tax year only) increases to 100 percent of AGI for individuals. Food contribution limits also increase to a maximum of 25 percent.

Questions?

Don’t hesitate to call and speak to a tax and accounting professional today.