CARES Act credits… mistakes waiting to happen (UPDATED 5/7/20 to reflect recent guidance)
While the majority of small businesses we consult with are actively pursuing Paycheck Protection Loans under the CARES Act, there are also a number of other credits businesses could consider to help them weather the crisis. Unfortunately, many of these overlap, and nearly all rely on the credit being taken against the employer portion of Social Security taxes.
As one example, beginning April 2020 employers can elect to defer payment of the 6.2% Social Security tax through December 31, and then pay it in ½ installments by December 31, 2021 and December 31, 2022.
Knowing most of the businesses The CTCS Group works with are planning to take out forgivable PPP loans, let’s make sure we are very clear on following before we move on:
If you are taking a PPP loan, you are NOT permitted to defer Social Security Taxes after you have received notice of loan forgiveness, nor are you able to take the Employee Retention Credit under Section 2301 of the CARES Act.
In fact, as we understand it, if you take out a PPP loan and mistakenly defer Social Security taxes AFTER you receive loan forgiveness, you will lose the forgiveness of your PPP loan. As noted above, this is a mistake waiting to happen, so make sure you are talking with your tax professional to help you navigate things.
OK… what if we are not taking out a PPP loan?
You have several new options for credits, but with the caveat that you need to be very careful with your accounting to make sure you are not “double counting” credits, which could in turn lead to penalties for underpayment of taxes due. Most credits under the CARES Act and FFCRA (paid leave and EFMLA) will not allow you to claim for the same wages.
For instance, if you have an employee taking Paid Sick/Family Leave under the FFCRA and are claiming that via payroll tax credit, you cannot also claim the Employee Retention Credit under the CARES Act for the same wages.
You can see where this will get very complex, and you need to be sure you are keeping careful records from an accounting and tax standpoint.
Given the haste all this legislation was passed in order to provide a lifeline to businesses, we are certain that over the coming weeks and months more clarity will be added to help with administration. However, in the short term, especially for those taking PPP loans, make sure you understand what you can and cannot do to ensure you don’t jeopardize your loan forgiveness.
As always, please reach out if you have any questions. The CTCS Group is here to help.
Chris Thomas, SHRM-SCP is the Principal Consultant with The CTCS Group in Canton, GA. The CTCS Group is focused on providing HR Leadership, Behavioral Assessments, and Consulting to help small businesses grow and thrive. You can subscribe to this blog or request a free consultation at www.thectcsgroup.com.
Disclaimer: The information and recommendations provided in this document should not be considered legal advice and should not substitute for legal advice where the facts and circumstances warrant. Recommendations are provided based on good faith assessment and interpretation of the available legal and regulatory resources.