Covid 19 Sick Leave Tax Credit 2021 | Covid-19 Tax Credits For Small Business
Many small business owners are not aware of the Covid 19 sick leave tax credit that is available from the IRS. This covid-19 tax credit provides a 100% payroll tax credit to employers who pay their employees during sick leave caused by Covid 19.
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Carlos: With the rise of COVID, again, many employers do not know that they can take advantage of tax credits that can help their businesses financially. That’s what we’re going to talk about in this video.
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In this video we’re going to talk about recently, unfortunately, COVID has been going up again, and most of our clients, their employees, they’re starting to get sick again, and they’re being absent from their workplace. Many small business owners don’t know that they can take advantage of this or get a tax credit to help their small business financially get through this pandemic situation. For this, I’m going to bring my coworker Carmen, because she is our expert in this field. How are you, Carmen?
Carmen: I’m doing great. How about you?
Carlos: Good, good. So, Carmen, can you tell us a little bit more about these tax credits that are available for employers that right now they’re not taking advantage of?
Carmen: Absolutely, ever since this whole pandemic situation came out last year, early last year, a lot of people have heard of FFCRA, The Families First Coronavirus Relief Act. That set forth a series of credits and AIDS available to small business owners in order to help their businesses stay afloat. So, sick leave and family leave were part of that. It’s emergency sick leave, and emergency family medical leave, okay, this is not your regular sick pay, that you would pay for just any other type of illness. This is specifically regarding COVID.
Carmen: And it was kind of lumped together with another big, you know, popular credit called the employee retention credit. And this one you have to qualify to get. And some people kind of lump them together and didn’t know how to differentiate. You know, both are fantastic credits, the employee retention credit gives you 50% of whatever qualified wages you paid in 2020, and in 2021 it gives you 70% However, this paid sick leave and emergency family leave. Whatever qualified wages a business pays, you’re entitled to 100% of that back.
Carmen: A lot of people don’t know that a lot of small businesses, especially those going through a crisis, want to help their employees, they want to pay sick leave, but they don’t think that they can afford it. And that’s the whole point of this act. And these credits are to really leave them with no excuse. They’re getting 100% of the wages that they paid outback. The important thing is just to make sure you know which situation you’re dealing with and to just stay updated, which is what we’re here for.
Carlos: Okay. So, the small business owner that wants to see how this tax credit works, how do they get this tax credit?
Carmen: Well, you simply get it, and by recognizing and acknowledging that you have an employee that got sick say that it’s- it’s the actual employee who came down with symptoms of COVID. They’re saying that they were told to quarantine or they’re waiting for a test result. And obviously, they’re not supposed to be at work, they’re supposed to be at home. So, if you’ve got somebody like that, and they cannot telework and they can’t work remotely, like say, a restaurant worker, or somebody who has to be in the office or place of work, they stay home and you in 2020, you were supposed to pay them, it wasn’t really an option, it was mandatory that you would pay them. If it’s the actual employee that got sick, you would have to pay them their full wage pay up to $511 per day, for two weeks, or 80 hours. So, it was the equivalent of two full-time work weeks. If the person is part-time, then you would get their average hours worked, and then pay that over the next two weeks with a maximum of $500 per day.
Now that entire period that you know, for two weeks, 80 hours. If you pay that person that you got to code it the right way and your payroll, you know, don’t name it a regular sick pay, because you want to differentiate it, you know, from the regular sick pay. But if it was due to COVID, then you would code the appropriate way and you were supposed to then, you know, fill out the 941 in the correct way. There’s a section on the 941 that will tell you where to put the qualified sick pay or family leave wages and you’d get 100% of that back. That’s if you got to the point of filing the 941 and you hadn’t done anything about it yet because everybody knows the 941 you file it at the end of that quarter but say right now, we’re in the month of August, so you don’t file this month until October.
Carmen: But if you paid somebody that month, do you want that relief as soon as you can get it? So, the way that this, you know, helps you is that whatever tax deposit that you have to make for your payroll taxes that month, or that period, then you would reduce that tax payment by the number of wages that you just paid. So, say you paid somebody $2,000, in sick leave, you know, wages for two weeks, but you were supposed to pay $4,000 in your tax deposit payment for payroll taxes. So, the way that you do it is that you reduce that $4,000 tax liability by the $2,000 of qualified, you know, sick leave, and you keep it, instead of paying it, you keep it. So, it’s immediate, this is not something that you have to fill in a form and wait to get unless it’s a large amount, unless you have a lot of people that are sick and- and then the amount that you’re supposed to get back exceeds your tax liability. But if it isn’t, you just reduce that tax payment that you were supposed to make and keep that money in your pocket. And that just reimburses you back.
Carlos: And is there a max limit on how much this sick leave credit, how much they can get back?
Carmen: They get back 100% of a maximum of $500 per day for that full-time employee for two weeks. So, if the person makes $800 a day, then you’re going to get back $500 a day for two weeks or 80 hours, that’s the equivalent of sick pay. On the extended family leave, that then gets reduced to two-thirds of the employee’s wages up to a maximum of $200 a day. Okay. But that extended family leaves for a maximum of 10 weeks. Wow. So that’s a lot of money.
Carlos: Yeah. Now, obviously, we’re talking about employers who have people on the payroll. Can self-employed people take advantage of this sick leave credit?
Carmen: They can, but you go about it a completely different way. It has nothing to do with payroll, it has nothing to do with federal tax deposits because you don’t make them if you’re self-employed. You know, you are your own boss, and you don’t file 941s unless you have people on payroll that you pay. But if you’re talking about your own wages, you can get credit for this. But you, unfortunately, have to wait until you do your taxes in 2022 for 2021. Or if you haven’t done 2020s taxes yet, and you were out and you couldn’t work or telework. And you were out for either the two weeks because you yourself were paid or were sick, I’m sorry. Or if you had a child that, you know- last year, what happened a lot where the schools closed for summer camp, their schools closed, they had to stay at home for the distance learning thing and all that. Or if either you were caring for a child that was sick or a spouse that was sick, then instead of calculating the 500 max per day, it’s two-thirds of the wages of your average, because you just go about it in a completely different way. And we can get into that in another you know, video. But you can, yes. As a self-employed individual, you can but you have to do it on your personal tax return and not via any payroll forms.
Carlos: Okay. Yeah, it’s interesting because these tax credits are available. And I think business owners concentrated so much on the PPP.
Carlos: Concentrating so much on getting the EIDL loan, that they don’t know there is additional help available to help your business financially during this crisis. An example is the employee retention credit. And now this sick and family leave tax credit that you can get. Obviously, if you have no idea what we’re talking about, call our office, get a consultation, we will make sure to see if your business can qualify for this credit because every dollar helps.
Carlos: Anything else, Carmen that people need to know about this sick, sick leave tax credit?
Carmen: Yes. So, as I said, this initially was released in the FFCRA. Back in March of last year, however, in December, an Appropriations Act came outright, it was signed into law by President Trump. And that one extended that it was no longer mandatory to pay sick leave or extended family medical leave, but you could voluntarily choose to continue to do so. And you continue to claim the credit through March 31 of 2021. So, now President Biden came out with another American rescue plan act in March of this year. And they extended that if you still want to voluntarily pay because I think this change happened because of what you mentioned at the beginning of the Delta variant. A lot of people getting vaccines are causing a lot of side effects. People are getting sick for whatever reason regarding COVID. So now it was extended again. It’s still voluntary, but you can still get 100% of those wages paid. Back to you, the business owner through September 30, 2021. And a few extra reasons now that I mentioned the vaccine were added as reasons that you could qualify for the paid sick leave. For example, if you got the vaccine or you’re scheduled to take it and you need you to know you got sick or you had downtime you were out because of illness or disability regarding the vaccine. That’s one of the reasons you can take it. And also, if you’re waiting for test results, that really wasn’t specified the first time around, but now it is so. So yeah, there are some changes being made.
Oh, and another very important thing if you’re a business owner and you had an employee already take their full 80 hours of sick pay that they were entitled to as of March 31, 2021, and they get sick again, the clock restarts April 1st. So, they get sick again now and they need to be out another two weeks. They get the full two-week pay again and you the business owner get 100% of that back once again. So, the corporate starts on sick leave, not on family leave. The family leave is 10 weeks. Now that the cab that’s another change that happened in the American rescue plan instead of 10 weeks, now it is 12 weeks. But that clock does not restart, only the sick leave. So, those are some of the major changes but if you need any help, of course, call our offices and we can guide you more through this credit.
Carlos: Perfect, so now you know as business owners, there is a lot of financial help available out there for your business to help during this coronavirus pandemic, these tax credits are available. It’s hard for us to know why other accountants are not advising their clients on this because we got a lot of calls in our office telling us “My CPA is not telling us anything of this”. So, you can call our office at 407-502-2400 you can schedule a consultation, we will evaluate your case. And we will find all the tax credits that are available for your business to help you go through this financial crisis and this pandemic and we will help you together.
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