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Businesses and Tax-Exempt Entities Financially Impacted by the Coronavirus

Overview

Need employment tax relief?

Try our COVID-19 Business Tax Relief Tool now. All you need to do is answer a few questions. It should take less than 5 minutes.

Alert: this tool and the subsequent page text below is up to date as of December 31, 2020. Updates based on any new legislation, passed after December 15, 2020, are not reflected in here yet, but will be made as soon as possible.

TAS COVID-19 Business Tax Relief Tool
Based on your answers, the tool will:

  • Let you know if you may be likely to qualify for any of the available tax relief options.
  • Link you to more information that will allow you to understand how to take advantage of those options.

Or you can simply read the information below about the available tax relief options.

Please help businesses affected by the COVID-19 pandemic understand tax relief options to stay in business by sharing this flyer (PDF), the link to this page or the tool’s direct link, via your website, newsletter, email, or social media. Read our TAS Tax Tip: COVID-19 Business Tax Relief Tool for Businesses and Tax-Exempt Entities for more information about this tool, how it works and more.

Employee Retention Credit

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on March 27, 2020, was designed to encourage eligible employers to keep employees on their payroll, despite experiencing financial hardship related to the coronavirus pandemic, with an employee retention tax credit (Employee Retention Credit). For the 2020 tax year, the CARES Act provided a refundable credit is 50% of up to $10,000 in wages paid by an eligible employer to employees after March 12, 2020, and before January 1, 2021. For more information, see Employer Tax CreditsEmployee Retention CreditCoronavirus Tax Relief for Businesses and Tax-Exempt Entities, and Employee Retention Credit FAQs.

The Consolidated Appropriations Act, 2021, enacted on December 27, 2020, and the American Rescue Plan Act, enacted on March 11, 2021, included changes to extend and modify the credit.

  • CARES Act – 2020 tax year

For employers who qualify, including borrowers who took a loan under the initial PPP, the credit can be claimed against 50 percent of qualified wages paid, up to $10,000 per employee annually for wages paid between March 13 and December 31, 2020.

  • Consolidated Appropriations Act – 2021 tax year

Employers who qualify, including PPP recipients, can claim a credit against 70% of qualified wages paid. Additionally, the amount of wages that qualifies for the credit is now $10,000 per employee per quarter for the first two quarters of 2021.

  • American Rescue Plan Act (ARPA)– 2021 tax year

The credit remains at 70% of qualified wages up to a $10,000 limit per quarter so a maximum of $7,000 per employee per quarter for all of 2021. So, an employee could claim $7,000 per quarter per employee or up to $28,000 for 2021.

Under the ARPA, the ERC is available to eligible employers for wages paid during the third and fourth quarters of 2021.

For more detailed guidance, including information relating to the definitions of qualified wages and eligible employers, as well as information about the applicable gross receipts test, see:

Paid Leave for Workers and Tax Credits for Small- and Mid-Size Businesses

Under the Families First Coronavirus Response Act (FFCRA), businesses can claim two new refundable payroll tax credits. The paid sick leave credit and paid family leave credit are available for eligible employers who pay qualified sick leave wages and/or qualified family leave wages from April 1, 2020, through December 31, 2020, and who have fewer than 500 employees. See COVID-19-Related Tax Credits for Paid Leave Provided by Small and Midsize Businesses FAQs for more information.

Extension of the Tax Credits – January 1, 2021 through March 31, 2021

Beginning January 1, 2021, employers were no longer required to provide federal EPSL or EPFL to employees who might be absent from work due to pandemic related reasons.

However, the COVID Relief Act, part of the omnibus Consolidated Appropriations Act, 2021,provided that if a covered employer voluntarily provides EPSL and EPFL between January 1, 2021 and March 31, 2021, the employer could continue to be entitled to a 100% tax credit for the amount of those payments, through March 31, 2021.

In other words, even though a covered employer was not required to provide EPSL or EPFL after December 31, 2020, the employer could voluntarily do so throughout the first quarter of 2021 and continue to qualify for available tax credits for doing so.

Extension of the Tax Credits – April 1, 2021 to September 30, 2021

Employers are still no longer required to provide federal EPSL or EPFL to employees.

However, the ARPA once extended to April 1, 2021 through September 30, 2021, and significantly modified the FFCRA paid leave credits.

These credits may be claimed on a quarterly basis against the employer’s share of the Medicare taxes (i.e., taxes imposed under Code Section 3111(b)) owed by the employer. Once again, a refund may be claimed if the amount of the credit exceeds the employer Medicare taxes due in a calendar quarter. The employer also is permitted to take an advance against the tax credit when making employment tax deposits.

Self-employed individuals looking to claim the Sick and family leave tax credits, see the information in the Other Individual COVID-19 Related Credits and Deductions page.

See Under the American Rescue Plan, employers are entitled to tax credits for providing paid leave to employees who take time off related to COVID-19 vaccinations for more details, including information about paid leave to employees receiving COVID-19 vaccines. See also Tax Credits for Paid Leave Under the American Rescue Plan Act of 2021 for Leave After March 31, 2021 for responses to frequently asked questions concerning these tax credits.

Important note

An employer cannot use the same wages for the Employee Retention Credit and the credits for paid sick and family leave.

How do I receive my credit?

You can get immediate access to the credits by reducing the employment tax deposits you are otherwise required to make. If your employment tax deposits are not enough to cover the credit, you can request advance payment from the IRS by faxing your completed Form 7200, Advance Payment of Employer Credits Due to COVID-19 to 855-248-0552. Read the instructions carefully and take time when completing this form. IRS has put together a list of common errors to avoid when filing Form 7200. For more information call 833-551-3588.

If you fully reduce your required employment tax deposits otherwise due on wages paid in the same calendar quarter to employees in anticipation of receiving the credits, and you have not paid qualified leave wages in excess of this amount, you should not file Form 7200. If you file Form 7200, you will need to reconcile this advance credit and deposits with the qualified leave wages on Form 941 (or other applicable federal employment tax return such as Form 944 or Form CT-1), and you may have an underpayment of federal employment taxes for the quarter.

Note that a Form 7200 requesting an advance of less than $25 will not be processed. Employers can claim credits of less than $25 on Form 941.

Some Employers Received Notice of Failure to Deposit Penalty after Claiming New Tax Credits

Although the IRS has taken steps to implement rules that prevent the failure to deposit penalty from incurring on employers reducing their deposits in anticipation of claiming the Sick and Family Leave Credits or Employee Retention Credit, some employers may still have inadvertently received notice of the penalty.

No additional actions are needed at this time. The IRS is working to identify these employer accounts and correct them as soon as possible. To avoid receiving a penalty notice in the future, check IRS.gov/form941 for guidance on properly reporting liabilities when reducing deposits.

Errors Employers Should Avoid When Requesting Advance Payment of Employer Credits

Employers who are filing Form 7200 should read the instructions carefully and take their time when completing this form to avoid mistakes. Using a reputable tax preparer can also help avoid errors. Mistakes can result in a processing delay, which means it may take longer to get the advanced payment. Review this list of common errors.

Delay processing Form 7200

For those experiencing a delay with processing your Form 7200, you will receive one of the following letters from the IRS:

  • Letter 6312, if the IRS either rejected Form 7200 or made a change to the requested amount of advance payment due to a computation error. The letter will explain the reason for the rejection or, if the amount is adjusted, the new payment amount will be listed on the letter.
  • Letter 6313, if the IRS needs written verification that the address listed on your Form 7200 is the current mailing address for your business. The IRS will not process Form 7200 or change the last known address until the verification is provided.

Deferral of Employer Social Security Tax Payments

The CARES Act allowed employers, including government employers, to defer the deposit and payment of the employer share of social security tax for deposits and payments due on or after March 27, 2020, and before January 1, 2021, as well as deposits and payments due after January 1, 2021, that were required for wages paid during the quarter ending on December 31, 2020. Payment for one-half of the deferred employer share of social security tax was due by December 31, 2021, and the remainder is due by December 31, 2022.

For more information, see the IRS Deferral of employment tax deposits and payments through December 31, 2020 FAQs.

Deferral of Certain Employee Social Security Tax Withholding and Payment

The President of the United States issued a Presidential Memorandum directing the Secretary of the Treasury to use his authority pursuant to section 7508A of the Internal Revenue Code to defer the withholding, deposit, and payment of certain payroll tax obligations. As a result, the Department of Treasury and the Internal Revenue Service issued guidance allowing employers to defer withholding and payment of the employee’s portion of the Social Security tax, if the employee’s wages or compensation were below a certain amount. Notice 2020-65 made relief available to employers for wages or compensation paid starting September 1, 2020, through December 31, 2020. It applies to payments of taxable wages or compensation to an employee that are less than $4,000 during a bi-weekly pay period, with each pay period considered separately.

Payment of Deferred Social Security Tax Withholding

Repayment of the employee’s portion of the deferral started January 1, 2021 and will continue through December 31, 2021. Payments made by January 3, 2022, will be timely because December 31, 2021, is a holiday. The employer should send repayments to the IRS as they collect them. If the employer does not repay the deferred portion on time, penalties and interest will apply to any unpaid balance. Employees should see their deferred taxes in the withholdings from their pay.

For more information, see:

Business Closures & More Resources

Business Closures

Closing your business can be a difficult and challenging task. The Taxpayer Advocate Service (TAS) partnered with IRS to expand its Closing a Business page to help business owners understand the specific actions needed, from a federal tax perspective, for each type of business.

More Resources

For more information, see the Coronavirus Tax Relief for Businesses and Tax-Exempt Entities or New Employer Tax Credits pageson IRS.gov. You can also visit the Department of Labor’s website, Families First Coronavirus Response Act: Questions and Answers.

COVID-19 Business Tax Relief Tool

Let us help you determine if you or your business is likely to qualify for one or more of the tax relief options currently available.

In 2020, the Federal government enacted several new laws that provide tax relief and assistance to businesses impacted by the Coronavirus (COVID-19). Some allow for an immediate dollar-for-dollar tax offset against payroll taxes to help pay for employee sick leave and some are designed to help keep employees on your payroll.

All you need to do is answer a few questions. It should take less than 5 minutes.

Based on your answers, the tool will:

  • Let you know if you may be likely to qualify for any of the available relief options.
  • Link you to more information that will allow you to understand how to take advantage of those options.

Note: As an individual taxpayer, you may also be eligible to receive an Economic Impact Payment (EIP). Visit Coronavirus (COVID-19) Tax Relief to learn more.

For questions or additional guidance about COVID-19 related tax relief; visit the IRS Coronavirus Relief site, Coronavirus Tax Relief for Businesses and Tax-Exempt Entities, and New Employer Tax Credits pages.

We also have more information available on our site at Coronavirus (COVID-19) Tax Relief.

Let us help you determine if you or your business is likely to qualify for one or more of the tax relief options currently available.

What type of business are you representing or inquiring about?

Disclaimer: This tool is not intended to replace formal guidance or provide an official qualification determination. This tool does not cover every unique situation. Instead it is intended to provide general information based on responses entered. Updates to this tool will be made weekly as needed.