By Romeo Chicco, CPA
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed late March in response to the COVID-19 pandemic to provide much-needed economic relief to individuals and businesses. Unfortunately, one of the benefits most talked about in the news is not available to cannabis related businesses; the Paycheck Protection Program (PPP), but there are other sections of the Act that can be taken advantage of.
The next best part of the Act for businesses may be Section 2301, the Employee Retention Credit (ERC), and I have even found that for some businesses this may actually be a better option. A business cannot do both, the PPP and the ERC, so if you have secured a PPP, this section is not for you. Eligible employers are allowed a credit against employment taxes for each calendar quarter equal to 50% of qualified wages paid to each employee. The wage amount is limited to $10,000 across all calendar quarters ($5,000 maximum credit, per employee). The credit is fully refundable because the employer may receive a refund if the amount of the credit is more than certain federal employment taxes owed.
An eligible employer is defined as one that was carrying on a trade or business (including not for profit) during calendar year 2020 and is either of the following;
1. The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
2. The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.
Eligible wages that count towards the $10,000 can be broken down to whether the company has greater or less than 100 full-time employees during 2019. For employers with more than 100 full-time employees during 2019, you can only count wages to employees that provided no services during the shutdown. In the case of employers with less than 100 full-time employees, wages count regardless of whether or not its employees are providing services.
The credit will also include the eligible employer’s qualified health plan expenses attributable to the eligible wages, but not to exceed the $5,000 limit per employee. If the credit exceeds the tax amount due, the employer can file the IRS Form 7200 to request an Advance Payment of Employer Credits to receive a check for an advance.
A third benefit of the CARES Act for employers would be found in Section 2302 and that allows the delay of payment of employer payroll taxes. It is not all employer taxes, but just the employer share of OASDI, or Social Security tax. A business would be able to delay depositing this tax to the IRS through the remainder of 2020. Half of the total amount undeposited by December 31, 2020 would become due on December 31, 2021, and the remainder would be due on December 31, 2022. This is another Section that cannot be taken advantage of in conjunction with the PPP.
In summary, there are benefits and help out there for all businesses, even cannabis. For assistance to all businesses, I have created paymaster.com/covid19 as a website of resources. The page is updated almost daily.
Romeo Chicco, CPA, is President/CEO of PayMaster.