Another three months! Feds aid small businesses with sick pay costs through March

Last year, the government offered help to small business inundated with coronavirus-related costs for sick pay and family leaves. Businesses with fewer than 500 employees could receive dollar-for-dollar relief for those expenses.

That all would have ended on Dec. 31, but Congress has extended government help for another three months. It was among the myriad of aid measures in enacted into law on Dec. 27 (Tax Relief Act of 2020).

 So, now, the nation’s small businesses can claim a tax refund for wages paid to their COVID-struck workers for sick leaves taken until March 31.  In addition, those companies also can be reimbursed for as much as 10 weeks of wages for an employee’s family leave if it is related to COVID-19.  For example, caring for his or her child when the regular day care closes could qualify for the payment.

Here’s how it works. The relief isn’t an immediate or direct payment like a stimulus check. Essentially, the business claims a credit against any employment taxes owed on its quarterly return. But this credit also is fully refundable. In short, if there are more credits than taxes, the employer issues a direct payment (electronic deposit or check) for the difference. 

So, small employers – including both for-profit and some non-profit organizations – will want to keep those costs in mind as they prepare quarterly employment tax returns. Unless Congress takes more action, this special tax break lasts only for leave costs up to March 31.

We should note that employers with fewer than 50 workers can ask for a special exemption from providing family leaves. Of course, they also would not benefit from these refunds.  

The Internal Revenue Service talks about the sick pay/family leave reimbursements in more depth at this link: https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-paid-leave-provided-by-small-and-midsize-businesses-faqs

Small business owners also can seek advice about their situations from a tax specialist such as Eric Buechler, owner of EricJohn Ltd. He is an enrolled agent recognized by the Internal Revenue Service.