Many businesses are finding it tough during the pandemic and childcare centers are no exception. The good news is that even though a lot of things are uncertain, the government has provided tax breaks and help during this uncertain time – something all business owners need. Here are a few of the tax breaks for childcare centers during COVID-19, including some more recent ones.
These are all created to benefit employers during the pandemic and may help you keep your childcare center finances profitable. There are even provisions that your employees can use which we cover below in part.
Some helpful measures from the IRS has passed such as the deadlines to file. Yet, there are plenty of other resources that you benefit from in keeping your business afloat.
Employee Retention Credit
The first tax break for businesses during COVID-19 is the Employee Retention Credit. The good news about this tax credit is that it is for every business size. There are no exceptions for size so small and large businesses alike benefit from this credit. The only caveat is that it is not available for those who have taken a small business loan and it is not accessible for state and local governments, which is not applicable to you.
How it works is that it is an incentive to keep your employees working and on the payroll. For those business entities affected by COVID-19, there is a refundable tax credit. The credit is up to $10K in wages paid by the employer which equals 50 percent of the wages up to that amount.
This may not help you right now but up to $10K in a tax credit comes in handy during tax season and may help you recoup some of your losses during the pandemic.
There are categories to follow to qualify for this credit. These include:
- A government order must partially suspend or fully suspend your childcare business during the pandemic. It also must be during the calendar quarter in question.
- Your gross receipts must be less than 50 percent of your 2019’s comparable quarter. If your gross receipts go above 80 percent of a comparable quarter in 2019, they no longer qualify after that quarter.
Paid Sick Leave Credit and Family Leave Credit
Some tax breaks include your employees and their situations that affect your business. In the Paid Sick Leave Credit, it covers your employees who cannot work. And while you may not typically have telecommuters at your childcare business, this covers those situations too. How it works is that if you have an employee who has to self-quarantine or has actual COVID-19 symptoms, as long as they have a diagnosis or definitely qualify under this umbrella, there is help for your business. These employees mentioned get help. They qualify for paid sick leave that equals up to 80 hours or 10 days of time off. It pays this at their regular rate of pay but only up to $5110 or $511 per day.
How this helps you is that along with the employee getting the help they need with being paid, you get a credit too. According to theIRS:
The employer can also receive the credit for employees unable to work due to caring for someone with Coronavirus or caring for a child because the child’s school or place of care is closed, or the paid childcare provider is unavailable because of the Coronavirus. It entitles those employees to be paid sick leave for up to two weeks (up to 80 hours) at 2/3 the employee’s regular rate of pay or, up to $200 per day and $2,000 in total.
What you also get as an employer is up to $200 a day. This is equal to 2/3 of the worker’s usual pay and the total is up to $10K. For the Family Leave Credit, up to 10 weeks qualifies.
The good news is you are immediately reimbursed by minimizing the required deposits of payroll taxes. These are the ones withheld from your worker’s wages by the amount of this Family Leave Credit.
From April 1, 2020 through Dec. 31, 2020, if you are an eligible employer you receive an immediate full credit. This covers the amount of family leave and sick leave along with two other amounts like your share of Medicare tax on the leave and related health plan expenses. These refundable credits offset the worker’s specific employment taxes on their wages.
Deferred Payment of Payroll Taxes (the CARES Act)
According to Score, here is another helpful credit you can take advantage of at your childcare center.
The CARES Act allows employers to defer payment of the employer’s portion of social security taxes that would have been due between March 27, 2020, and December 31, 2020, and instead make those deposits in installments—half by the end of 2021 and half by the end of 2022.
It requires no special election for businesses to defer their deposits and payments, and the IRS is revising the Employer’s Quarterly Federal Tax Return (Form 941) to reflect these changes.
This is a credit that most employers qualify for but those who take advantage of the Paycheck Protection Program (PPP) cannot take part in this credit until the IRS forgive their Paycheck Protection Program loan. After that, you can take part in the Deferred Payment of Payroll Taxes through the CARES Act.
How To Get the Credits
Knowing about the credits is one thing but how do you get them? As mentioned, you are immediately reimbursed by minimizing the required deposits of payroll taxes. But these credits also cover future expenses during tax time so you get help in more ways than one.
Employers can request forms to help with this process. Here are the forms and what they do.
Form 7200 Advance Payment of Employer Credits Due to COVID-19
Requesting Form 7200, Advance Payment of Employer Credits Due to COVID-19is for eligible employers to recieve an advance payment from the Internal Revenue Service. To qualify, employers report the related health insurance costs and total qualified wages for each quarter. You do this on Form 941 or your usual quarterly employment tax returns and has to be done within the second quarter. How you get the credit is if you cannot cover the credit for your employment tax deposits.
Form 7200 also allows you to request an advance of the Employee Retention Credit.
Employee Retention Credit under the CARES Act Facts
We’ve gone over much of what it includes in these tax breaks but here are a few facts that may clear some things up.
One question you may have is if you qualify for both the Paycheck Protection Program (PPP) and the Employee Retention Credit simultaneously. The answer to that is no. If you are an employer who claimed the PPP, then you may not claim the Employee Retention Credit.
Yet, there is a situation where you qualify for two credits. If you qualify for the Employee Retention Credit under the CARES Act and qualified leave wages under the FFCRA you can get both but not for the same wages. How this works is that the amount of entitled wages for what you may claim under the Employee Retention Credit does not include the amount of family leave wages and qualified sick for which the employer receives tax credits under the FFCRA.
Families First Coronavirus Response Act
Keep in mind that the Families First Coronavirus Response Act works to help people affected by COVID-19 and provides these tax breaks to those businesses that employ them.
Let Us Handle the Headache
No matter how adept you are at business matters, dealing with the IRS can frustrate. Honest Buck Accounting knows how to maneuver the confusion of tax time and handles these situations daily. Schedule a call with one of the team’s experts to learn how we can work together.
We realize that during this time you may have more than you can handle and do not need extra paperwork or IRS rules to learn. Hopefully, you have gained insight into helpful measures the government has taken in order to make it easier on business owners like yourself.