COVID Tax Credit and More
Hurricanes, tornadoes, and earthquakes are the first things that come to mind when you think about natural disasters. Many people questioned whether COVID was a natural disaster when the pandemic struck America. And forced the closure of several enterprises. So, keep on reading to learn more about Covid tax credit.
The government declared the coronavirus a natural disaster. Because of the devastation, the illness brought about, they approved disaster relief programs to keep businesses afloat. These initiatives, like the paycheck protection scheme and the employee retention credit, were put in place to assist retain workers.
Employers worked concurrently to understand government directives. How do these programs affect your company’s taxes, then? For additional information on these programs and how to properly account for them, continue reading below.
A Natural Disaster Is COVID
The COVID epidemic was classified as a qualifying natural catastrophe. Or a natural disaster on March 12, 2020, according to the government and the Internal Revenue Service. Businesses that closed down or otherwise had to stop some of their operations due to a disaster were eligible for certain disaster relief credits.
Is COVID a Natural Disaster for Tax Purposes?
For those who are unsure whether COVID is a natural disaster. In terms of taxation, the answer to the question “is COVID a qualifying disaster” is yes. In response to the epidemic, specific COVID-19 assistance and payroll credits are available. For instance, there is the ERTC or employee retention credit.
Credit for Employee Retention
Businesses were eligible for a retention credit on a portion of their social security tax if they maintained staff members on the payroll throughout the pandemic.
Qualifications for the ERTC:
- Partial or whole cessation of commercial operations as a result of a government directive
- The gross receipts of your company decreased.
If you are an eligible firm, you may be able to produce a credit based on the full-time employees’ health plans and qualified salaries. Through the newly passed IIJA measure, you could retroactively claim the ERTC credit on wages that were not forgiven through the PPP provided. You also received a loan through the Paycheck Protection Program.
Common Falsehoods Regarding COVID Taxes
When attempting to account for these credits, many business owners make several misunderstandings and errors. For instance, many people thought they were ineligible for these tax credits since their company was regarded as vital. In actuality, businesses that were impacted or had their operations changed, even those that were deemed essential, might still qualify.
The main inquiry you must address when assessing eligibility is, “Was my business unable to continue normal operations even after the government order? Has the government decree had a detrimental impact on the company?
You can be eligible if the government order had a detrimental impact on the firm. This is simply a portion of the eligibility test, of course. Additionally, your company’s receipts for the applicable tax year must have decreased.
A Decline in Receipts of Less Than 50%
Many companies believed they could not qualify for this credit. All because they could not meet the gross receipt requirements. Thankfully, the CAA (Consolidated Appropriations Act) decreased the requirement from 50% to 20%.
My Company Expanded While in Quarantine
Businesses that grew during the quarantine or didn’t experience a large drop in sales often weren’t eligible for the credit.
However, if your business has to close, cut back on staff, or experience a partial shutdown at any point during the tax year, you might still be qualified. Reach out to a tax expert for more details as some expenses might be eligible.
I Filed for PPP
As was previously established, customers who requested disaster assistance for a COVID Paycheck Protection Program loan believed they were ineligible for the credit.
The CAA allowed PPP participants to still be eligible for ERTC credits for any wages that were not covered by the Paycheck Protection Program.
Assistance with ERC and COVID Tax Status
Let’s say you’re not sure if your business qualifies for the ERC or you need assistance understanding the distinction between PPP-forgiven wages and ERC wages. You can contact businesses in that situation.
You could be tempted to use online tax software to assist you to understand these credits, but you won’t have many choices. It would be better if you got in touch with a professional to take care of the accounting and filing for you.
Disaster Relief Tax Assistance through COVID
It’s time to investigate what tax relief alternatives your firm is eligible for now that you have the answers to the questions “is COVID a natural disaster?” and “does COVID count as a natural disaster for taxes?” It’s a relief that there are materials available to help clarify eligibility statuses because many businesses made incorrect assumptions about their eligibility for the PPP and the ERC.
Additionally, there are tools available to support your company’s retroactive credit claim. If you want to know more about your ERC options or need assistance with credit accounting, get in touch with us.