The just-enacted Coronavirus Aid, Relief, and Economic Security (CARES) Act provides tax benefits for ophthalmology practices to offset the financial impact of the COVID-19 emergency.
Employee Retention Credit
A provision of the CARES Act created an Employee Retention Credit that provides a refundable payroll tax credit equal to 50 percent of up to $10,000 in wages per employee (including health benefits) paid by certain employers during the coronavirus crisis.
The credit will be available to those:
- whose operations were fully or partially shut down by government order limiting commerce, travel, or group meetings due to coronavirus
- whose quarterly receipts are less than 50% for the same quarter in the prior year.
Wages paid to employees during the time they are furloughed or otherwise not working as a result of their employer’s closure or economic hardship are eligible for the credit. For employers with 100 or fewer employees, all employee wages will qualify for the credit. This applies regardless of whether employees were furloughed or had reductions in hours.
- Employers that receive Small Business interruption loans are not eligible for the credit.
- Wages that qualify for the required paid leave credit are not eligible for the credit.
- The credit is for wages paid by eligible employers from March 13, 2020 through Dec. 31, 2020.
Find more information about the credit:
Treasury Guidance on Employee Retention Tax Credit
Treasury FAQ on Employee Retention Tax Credit
Payroll Tax Relief
The CARES Act also allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax.
Deferred employment tax will be required to be paid over the following two years, with half of the amount required to be paid by Dec. 31, 2021 and the other half by Dec. 31, 2022.
Modifications to Limitations on Net Operating Losses
The CARES Act also relaxes the limitations on a company’s use of losses. Net operating losses (NOL) are currently subject to a taxable-income limitation, and they cannot be carried back to reduce income in a prior tax year.
A provision of the bill will allow a net operating loss from a tax year beginning in 2018, 2019 or 2020 to be carried back five years. The provision also temporarily removes the taxable income limitation to allow a net operating loss to fully offset income. These changes will allow companies to utilize losses and amend prior year returns.
Modification of Limitation on Business Interest
Another provision of the CARES Act temporarily increases the amount of interest expense businesses are allowed to deduct on their tax returns, by increasing the 30-percent limitation to 50% of taxable income (with adjustments) for 2019 and 2020. As businesses look to weather the storm of the current crisis, this provision will allow them to increase liquidity with a reduced cost of capital, so that they are able to continue operations and keep employees on payroll.