COVID-19 Employer Tax Credits

As COVID-19 continues to spread across the country, the IRS is still offering relief to small and midsize businesses that may have been impacted by the coronavirus pandemic.  

The IRS is offering the following credits to help businesses offset the financial burden of COVID-19:

1. Employee Retention Credit

Eligible employers can claim this credit for wages paid after March 12, 2020, and before January 1, 2021.

Eligible Employers 

The credit is available to all employers that have experienced economic hardship due to COVID-19. This includes tax-exempt organizations. Only two exceptions apply:

  1. Federal, state and local governments and their instrumentalities, and
  2. Small businesses that receive small business loans under the Paycheck Protection Program.

For purposes of this credit, employers experiencing an economic hardship include those with suspended operations due to a government order related to COVID-19 or that have experienced a significant decline in gross receipts.

An employer may have to fully or partially suspend operations because a governmental order limits commerce, travel, or group meetings due to COVID-19 in a manner that prevents the employer from operating at normal capacity.

A significant decline in gross receipts begins in the first calendar quarter in 2020 in which an employer's gross receipts are less than 50% of its gross receipts for the same quarter in 2019. The decline ends the first calendar quarter in 2020 after the quarter in which the employer's gross receipts are greater than 80% of its gross receipts for the same quarter in 2019. The employer calculates these measures each calendar quarter.

Amount of Credit

The tax credit is 50% of up to $10,000 in qualified wages paid to an employee. The employer's maximum credit for qualified wages paid to any employee is $5,000. Qualified wages include the cost of employer-provided health care.

2. Paid Sick Leave Requirement and Credit

Employees of eligible employers who are unable to work or telework because they're quarantined or experiencing COVID-19 symptoms and seeking a medical diagnosis can receive up to 80 hours of paid sick leave. This pay is at their regular pay rate or, if higher, the applicable minimum wage, up to $511 per day and $5,110 in total.

Employees can receive up to 80 hours of paid sick leave at 2/3 of their regular pay or, if higher, the applicable minimum wage, up to $200 per day and $2,000 in total. Employees can receive this benefit if they need to care for:

  • an individual subject to quarantine,
  • a child whose school or place of care is closed, or
  • a child whose child-care provider is unavailable,

due to COVID-19 or because they're experiencing similar conditions as specified by the U.S. Department of Health and Human Services.

An employee is eligible for paid sick leave, regardless of length of employment. The eligible employer is entitled to a fully refundable tax credit equal to the required paid sick leave wages. Eligible employers can also get an additional credit for the employer's share of Medicare tax imposed on the qualified sick leave wages and the cost of maintaining health insurance coverage for the employee during the sick leave period. The employer is not subject to the employer portion of Social Security tax on those wages.

3. Paid Family and Medical Leave Requirement and Credit

In addition to the paid sick leave credit, an employee who is unable to work or telework because of a need to care for a child whose school or place of care is closed or whose child-care provider is unavailable due to COVID-19, is entitled to paid family and medical leave equal to 2/3 of the employee's regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted toward the paid family leave credit.

An employee qualifies for paid family and medical leave if they've been on an employer's payroll for 30 calendar days or more. The eligible employer is entitled to a fully refundable tax credit equal to the required paid family leave wages. Eligible employers can also get an additional credit for the employer's share of Medicare tax imposed on those wages and its cost of maintaining health insurance coverage for the employee during the family leave period. The eligible employer isn't subject to the employer portion of Social Security tax on those wages.

For more information, examples and instructions on claiming the credits, check out the IRS Toolkit for Small Business Relief: for employees and & Relief for compliance efforts.

Subscribe to the Construction Newsletter