It’s no secret that we’re in a period of change across many industries, and that change includes the tax preparation landscape. As with any new change, there can be some confusion – but that’s why we’ve produced this blog post – to summarize the important elements of the CARES Act!
What is the CARES Act?
The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, is a law intended to address the economic fallout of the COVID-19 pandemic in the United States. The CARES Act is designed to provide for Economic Impact Payments to American households of up to $1,200 per adult for individuals whose income was less than $99,000 (this is doubled for joint filers) and $500 per child under 17 years old. This can be up to $3,400 for a family of four.
What Are the Major Changes for Tax Preparers?
Really, while there are a couple changes coming, the two main topics for tax preparers are the Paycheck Protection Program, and the Employee Retention Credit. So let’s break those down for you.
1. The Paycheck Protection Program
The Paycheck Protection Program established by the CARES Act, is implemented by the Small Business Administration with support from the Department of the Treasury. This program provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits.
This program authorized up to $349 billion toward job retention and other expenses for small business owners – helping employees of these kinds of small businesses to stay earning during the pandemic.
Small businesses and eligible nonprofit organizations, Veterans organizations, and Tribal businesses described in the Small Business Act, as well as individuals who are self-employed or are independent contractors, are eligible if they also meet program size standards.
2. The Employee Retention Credit
The Employee Retention Credit under the CARES Act encourages businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.
Eligible employers can get immediate access to the credit by reducing employment tax deposits they are otherwise required to make. Also, if the employer’s employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the IRS.
For each employee, wages (including certain health plan costs) up to $10,000 can be counted to determine the amount of the 50% credit.
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