Businesses and individuals have realized that COVID-19 is more than a health crisis. It is also an economic crisis, with people and businesses around the country feeling the sting of lost wages and revenue. The IRS has stepped in to lessen the pain by providing some guidelines for individuals and businesses. These new guidelines will help Americans find steady footing during these uncertain times.
COVID-19 and tax guidelines
Most people are aware that the IRS extended the deadline to file taxes to July 15, 2020. What many do not realize is that this is just the tip of the iceberg regarding IRS guidelines for the coronavirus pandemic. The IRS is making it easier for employers to pay employees, even those who cannot go to work due to COVID-19.
Also, the IRS has relaxed guidelines for those who need to take money out of retirement accounts. Learn more about how these guidelines impact individuals and businesses.
Employee retention credit
The Employee Retention Credit is one of the IRS’s most exciting offerings. Businesses of all sizes can apply for this credit. In order to qualify, businesses must meet one of two criteria. First, this credit is available to companies that have suspended by a government order as a direct result of the COVID-19 pandemic. Second, businesses with gross receipts that total less than 50% of what they were in the same quarter of the previous year are eligible.
Companies can be eligible for a credit that is 50% of the qualifying wages, which are capped at $10,000. Employees can include the amount they pay in health care when applying for this tax credit. Once approved, employers can reduce employment tax deposits as a method of reimbursement. If employment taxes do not cover the full credit, the IRS can send direct payments. Then, companies can use the money to keep employees on the payroll during the COVID-19 crisis.
Paid sick leave refundable credit
Employees who are sick need to stay home during the COVID-19 outbreak. The IRS has announced a paid sick leave refundable credit to ease the burden on employees and employers. Employees who cannot work due to COVID-19 can receive up to 80 hours of paid sick leave, and the employer receives a fully refundable tax credit. The IRS states that the tax credit also covers the Medicare tax and health care expenses the employer has paid.
Paid family leave refundable credit
With schools and childcare facilities shut down, parents are having a hard time getting to work. The IRS announced a paid family leave refundable credit for those who have to care for their children. Employees can take up to 10 weeks of paid family leave, and the employer receives a refundable tax credit. The credit includes health care expenses and the Medicare tax.
Early withdrawal penalty waived
Hopefully, people will not have to reach into retirement accounts for money during the coronavirus pandemic. Still, those who have been impacted by COVID-19 can withdraw up to $100,000 without paying the 10% early withdrawal fee. Taxpayers must claim the distribution when filing taxes. They can spread out over three years to avoid paying the full tax obligation at once. Also, those who pay the distribution back within three years will receive a refund on any taxes paid.
Let the system help you during the COVID-19
Worrying about your health and your finances is overwhelming. Fortunately, you do have some financial options to soften the blow of COVID-19. If your company is eligible for a tax credit, take advantage of it. These credits can help businesses stay afloat during this difficult time.
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