Employee Payroll Taxes

As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.

Employee Payroll Taxes and Government Stimulus: A Quick Guide

The coronavirus outbreak has brought much of the economy in the United States to a standstill. The Trump Administration seeks to provide relief for businesses, including giving a break on employee payroll taxes. The public health crisis has instigated the CDC and state governors to make a number of recommendations to slow the spread of the virus including mandated work-from-home arrangements, social distancing, and forced closure of non-essential businesses. These measures, while necessary to contain COVID-19, are putting significant financial burdens on small business owners. Lawmakers in Washington DC and in statehouses across the country have proposed, and in some cases enacted, a number of policies designed to reduce the economic impact of this pandemic and help small business owners manage their employee payroll taxes. We’ve collected some of the most important proposals below to keep you up to date on how the government is responding to the novel coronavirus pandemic.

Employee Payroll Taxes Holiday

In the considerations for forms of economic stimulus is a proposal from the White House. President Trump has suggested suspending the entire payroll tax for the rest of the year. The idea is that a reduction of suspension of the payroll tax would result in higher wages for workers and a smaller payroll burden for business owners. Payroll tax holidays give small business owners greater liquidity and could give enough of a cushion to prevent layoffs or the suspension of investment. One of the more salient effects, according to George Washington University economist Steven Hamilton, is that the improved liquidity for small businesses would significantly reduce the rates of business failure, increasing the chances of a speedy economic recovery once COVID-19 has been effectively contained. The employee payroll taxes holiday proposal was debated hotly from both sides of the article. There are many who believe that suspending the payroll tax would put too much of a burden on the welfare programs it funds, Social Security and Medicare, and history tells us that these types of stimulus are often attenuated by households saving the amount of the tax break. Even with these criticisms, a payroll tax holiday for small businesses was included in the negotiations concerning the Senate Republicans’ proposed stimulus bill. Impact for SMB Managers: A payroll tax holiday would put more money in your employee’s pockets and would give you a cushion that could stave off business closure or layoffs.

Direct Payments to Taxpayers

One of the most salient proposals for coronavirus relief is a plan for the federal government to make direct payments to taxpayers, with Senators suggesting payments ranging between $1,000 and $2,000. Republicans in the Senate unveiled their stimulus package on Thursday, and in that plan, they outlined a means-tested direct payments scheme:

  • Those making up to $75,000 a year would be eligible for a $1,200 check from the government
  • Payments would decrease by $5 for every additional $100 of income over $75,000
  • Married couples filing jointly making less than $150,000 would be eligible for a $2,400 check from the government
  • Payments for married couples would also decline gradually for those jointly earning more than $150,000, with the payments phasing out at $198,000
  • Payments for those with little-to-no tax liability but with at least $2,500 in qualifying income would get $600 ($1,200 for married couples).
  • These payments and qualifications would be based on an individual’s 2018 tax returns.

Negotiations on this bill are not complete, and the end result of these negotiations could produce any number of changes including multiple payments, increased payments for extra family members, and changes in qualifications for support. Impact for SMB Managers: Congress is considering lots of options in its consideration for how it can best support Americans and stimulate the economy. Direct payments will support your employees during the COVID-19 outbreak.

Federal Income Tax Payments: Filing and Payment Relief

The Secretary of the Treasury, Steven Mnuchin, and IRS announced on March 21 that the filing deadline for federal tax liabilities has been extended to July 15th. If you are owed a refund, however, you are encouraged to file as soon as possible. Federal tax payments can also be deferred to the July 15 deadline, as the Treasury is waiving the usual interest and penalties for late payments. This relief also applies to any estimated tax payments. Any estimated tax payments that would have been due on April 15, 2020, can be deferred to the July 15th deadline. Corporations can defer up to $10 million in federal payments through this scheme. It’s important to note that this relief only applies to federal tax payments. Your state tax payment and filing deadlines may remain unchanged. TurboTax has an excellent explainer page including state-by-state tax payment changes, and you can check for more details by visiting your state’s tax administration website. Impact for SMB Managers: Small business owners can now defer both regular and estimated tax payments for the 2019 tax year until June 15. That means that you will have more money available for short-term financial triage, but you should also plan for the eventual payment of your tax liability.

Expansion of SBA Economic Injury Disaster Loans

The Small Business Administration (SBA) has announced that its disaster assistance business loan program will extend to businesses affected by the coronavirus. This program extends low-interest loans of up to $2 million to businesses in SBA disaster loans:

  • These loans are only available to businesses for which it is their last option. If small business owners have access to credit elsewhere, they will not be eligible for these loans.
  • Our experts at Biz2Credit advise that it can take anywhere from 4 weeks to 4 months for businesses to actually receive cash through these programs.

Lawmakers have advanced legislation to bolster this program and expand other SBA programs, including the 7(a) loan-guarantee program, to get working capital into the hands of affected businesses ASAP. You can read more about the Trump administration’s plans for bolstering SBA disaster loans in response to COVID-19 in our recent article. Impact for SMB Managers: If small business owners are unable to find credit elsewhere, SBA disaster loans and expanded loan guarantee programs will help you secure the credit you need from financial institutions. Even if you can find business credit elsewhere, the Federal Reserve has slashed interest rates, which will make lending a lot less expensive for businesses.

State and Local Relief Programs

State governments in affected regions of the United States are also doing their part to help small business owners manage their payroll and continue the employee-employer relationship. For example, Mayor Bill de Blasio of NYC announced that the city government would be providing relief to small business owners in the form of loans and grants including:

  • Zero-interest loans of up to $75,000 for small businesses with less than 100 employees who had seen a 25% reduction in revenues
  • Grants for small businesses with less than 5 employees to cover 40% of payroll for two months

The City of Los Angeles has put in place a “Small Business Emergency Microloan Program” for businesses responsible for low-income jobs within Los Angeles. The loans would have extremely low-interest rates, going as low as 0% for six-month loans, and would be granted on the condition that the cash would be used for working capital only. Many plans are still being hammered out and aren’t yet active. Contact your governor’s office, your local Chamber of Commerce, and your local SBA office to see what resources are or could be available. Impact for SMB Managers: These local programs could provide a vital lifeline to affected businesses. They could either be a source of additional capital on top of federal assistance or just another option in your emergency toolkit.

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