A Closer Look at COVID-19 Relief: Tax Credit Opportunities for Small Businesses
The economic impacts of the COVID-19 pandemic have significantly challenged small businesses across the country. However, various new and expanded tax credits have emerged from pandemic relief legislation as potential lifelines.
Understanding the key opportunities created specifically to aid small businesses can help owners weather the storm and better position themselves for the future.
Employee Retention Credit
The Employee Retention Credit provides eligible employers with a refundable tax credit on wages paid to employees during pandemic-related business disruptions or closures.
For 2020 and 2021, the credit is worth up to $5,000 per employee for businesses fully or partially suspended due to COVID-19. Businesses can qualify based on year-over-year quarterly revenue declines.
Paid Leave Credits
The Families First Coronavirus Response Act established payroll tax credits to reimburse businesses providing paid sick and family leave to employees impacted by COVID-19. Eligible employers can receive tax credits for sick leave wages and qualify for family leave credits for up to $12,000 in wages per employee. These credits enable businesses to offer critical paid leave without additional costs.
Restaurant Revitalization Fund
This new Small Business Administration program provides restaurants with funding equal to pandemic-related revenue losses, up to $10 million per business.
Recipients are not required to repay the money if funds are applied to eligible uses, such as payroll and operating expenses. This program essentially functions as a tax credit for struggling restaurants.
Shuttered Venue Operators Grants
Live venue operators, including theatres, museums, and zoos that were forced to close due to the pandemic, can apply for these SBA grants. Grants equal 45% of gross earned revenue, up to a maximum of $10 million.
Recipients of these grants will not be taxed on the amounts, functioning similarly to a tax credit.
Low-Interest Disaster Loans
Small businesses impacted by COVID-19 are eligible for Economic Injury Disaster Loans of up to $2 million at 3.75% interest rates. Because the loans carry such favorable terms, they essentially provide businesses with tax credits equal to the amount of interest saved relative to market rates.
Refundable AMT Credits
Businesses receiving refundable Alternative Minimum Tax credits can accelerate the return of those amounts to improve cash flow during COVID-19. Eligible small businesses should evaluate claiming the credits as soon as possible.
The COVID-19 pandemic has dealt small businesses an unprecedented economic blow. But targeted tax credits created by relief legislation provide real opportunities for owners to recover revenue, cut costs, and stabilize finances.
With proper planning and expert guidance, small business leaders can maximize these credits to not only survive the pandemic but potentially emerge stronger.