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Refundable Payroll Tax Credit For Home Service Businesses

Refundable Payroll Tax Credit For Home Service Businesses

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Posted by EJ Brown

April 6, 2020


Download a free Refundable Payroll Tax Credit facts sheet here:


Per the

Coronavirus Aid, Relief, and Economic Security (CARES) Act

, businesses will be eligible for a 50% refundable payroll tax credit on worker wages paid from March 12, 2020 through January 1, 2021.

This credit offsets the employer's share of Social Security payroll taxes up to 50% of wages paid to employees during the COVID-19 crisis. It is available to employers whose operations were fully or partially suspended due to a COVID-19 shut-down order, or had a 50% year over year decline in gross receipts. Wages are capped at $10,000 per eligible employee (i.e., the payroll tax credit is capped at $5,000 per eligible employee).

This is a refundable credit so if the amount of the credit calculated for your business exceeds the amount of applicable payroll taxes you actually owe the excess is refunded to you.

Employers who receive a 7(a) loan through the Paycheck Protection Program under the CARES Act are not eligible for this payroll tax credit. In addition, wage payments can not be counted toward this credit if they were counted towards the payroll tax credit under the Families First Act for paid family and medical leave. 

Who Is Eligible?

To be eligible, businesses should be able to meet the standards to show either business disruption or significant revenue decline.

The Business Disruption Clause

Was your business ordered to either partially shut down or fully shut down due to COVID-19 by your city, state or federal governmental authority between March 13, 2020 to December 31, 2020? If yes, ask yourself the below questions for eligibility:

Question 1: Did you pay your employees while you were ordered to partially or fully shut down by your city, state or federal govt authority due to COVID-19? If no, you are not eligible based on the Business Disruption clause. If Yes, go to Question 2.

Question 2: Do you have greater than 100 employees:? If yes, you can only get the credit against wages you are paying for furloughed employees and not against employees still actively working for you. If no, go to Question 3.

You can get as a payroll tax credit equal to 50% of: (a) wages you paid to your furloughed employees (i.e., these employees are not providing services on behalf of your business) and (b) any group health plan insurance costs you paid on behalf of these furloughed employees during the period when you were ordered to shut down. The wages and health plan insurance costs are capped at $10,000 per employee (i.e., your tax credit is capped at $5,000 per employee).

Question 3: If you have 100 or fewer employees: You can get as a payroll tax credit equal to 50% of: (a) any wages you paid your employees (whether or not they are still working or furloughed) and (b) any group health plan insurance costs you paid on behalf of your employees during the period when you were ordered to shut down. The wages and health plan insurance costs are capped at $10,000 per employee (i.e., your tax credit is capped at $5,000 per employee). 

Significant Decline Clause

There are revenue-based eligibility tests each quarter of 2020: (1) Greater than 50% Revenue Decline Compared to Same Quarter Last Year (i.e., Becomes Eligible) or (2) Greater than 80% of Revenue in the Same Quarter Last Year (i.e., Lose Eligibility).

Question 1: Is your business seeing greater than a 50% decline in revenue in the March 31, 2020 ending quarter compared to the March 31, 2019 quarter? If no, you are not eligible this quarter so test next quarter. If yes, go to Question 2.

Question 2: Do you have greater than 100 employees:? If yes, you can only get the credit against wages you are paying for furloughed employees and not against employees still actively working for you. If no, go to Question 3.

You can get as a payroll tax credit equal to 50% of: (a) wages you paid to your furloughed employees (i.e., these employees are not providing services on behalf of your business) and (b) any group health plan insurance costs you paid on behalf of these furloughed employees during the quarter. The wages and health plan insurance costs are capped at $10,000 per employee (i.e., your tax credit is capped at $5,000 per employee).

Question 3: If you have 100 or fewer employees: You can get as a payroll tax credit an amount equal to 50% of: (a) any wages you paid your employees (whether or not they are still working or furloughed) and (b) any group health plan insurance costs you paid on behalf of your employees during the quarter. The wages and health plan insurance costs are capped at $10,000 per employee (i.e., your tax credit is capped at $5,000 per employee).

In the quarter where your business’ revenue is greater than 80% of the prior-year quarter revenue, you can still claim the payroll tax credit in that quarter, but lose eligibility in the following quarters. 

Examples

Meeting the business disruption clause: This is a case where your state (or city, or federal authorities) declared your business non-essential and you had to either partially or fully shut down. If you have more than 100 employees that you are still paying wages toward, you can claim 50% of the wages (and health insurance costs) from those furloughed employees against your quarterly payroll tax payments. You can't claim wages against employees that are still actively working for you. However, if you have fewer than 100 employees, you can claim wages (and health insurance costs) for all employees (whether or not they are actively working for you) against your quarterly payroll tax payments.

Meeting the significant decline clause: This is a case where your business quarterly revenue is down more than 50% from the same quarter last year (i.e., if you made $10,000 in revenue in Q1'19; in Q1'20, you made less than $5,000 in revenue), you are eligible. You will test each quarter in 2020 and in the quarter your revenue is greater than 80% of the revenue generated in the same quarter last year (i.e., Q2'19 you made $10,000 in revenue; in Q2'20 you made more than $8,000 in revenue) you lose eligibility. In the quarter you lose eligibility, you can still claim the tax credit for that quarter but you cannot take the tax credit in future quarters.

Who is Eligible

All employers that meet the conditions of either (1) Business Disruption Clause or (2) Significant Decline Clause.

How to Apply

This is a credit against your quarterly payroll tax payment to the IRS (to offset the employer portion of Social Security taxes).


Download a free Refundable Payroll Tax Credit facts sheet here:


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