Tom Griffiths on How SMEs Can Save on Taxes in 2021 Thanks to Biden’s Covid Relief

Following Joe Biden’s signing of the American Rescue Act, over $5 trillion has been spent on stimulus programs to combat the negative impact that covid-19 has had on the US economy. Programs such as the paycheck protection program and the economic injury disaster loan program are two examples of how a large amount of the $5 trillion is being used to help the funding of small businesses. Not only do these stimulus programs include tax incentives that can be beneficial to Small and Medium Sized Enterprises (SMEs) by saving them money on taxes in 2021, but in some instances, they even provide additional funding. Below are five incentives that every SME owner should be considering this year.  

The Families First Coronavirus Response Act Tax Credit

This legislation requires employers to compensate employees if they have had to take any time off work because they, or equally their family members, were in any way affected by covid-19. The ways that people could be affected by covid-19 is not limited to simply being infected with the virus; however, it can also include other circumstances such as having to supervise children whilst they attended virtual classes.  

The Act provides tax credit which allows the business owner to claim money back from their federal payroll tax returns for any wages they have had to pay as a result of employees being affected by covid-19.  

As oppose to being mandatory as it was in 2020, this legislation in 2021 is now voluntary. If employers continue to offer these benefits to their employees, time off now includes time where employees get vaccinated and recover from the potential side effects of that vaccination. This credit has been extended through to September 2021.  

The Employee Retention Tax Credit

This credit was initially part of the Cares Act that was introduced in March 2020, which has since been extended through to 31st December 2021. A business can qualify for this tax credit so long as it can prove it has been partially or fully shut down during the pandemic. Alternatively, businesses will be eligible if they can prove, when compared with what they made in 2019, that their businesses revenue has declined by more than 20%. If they qualify, the business can take a credit for up to $7,000 per employee, which will be calculated based on their wages against their employer payroll taxes owed.  

If, when calculated, the credit due is larger than what’s owed, the business can claim that difference back in cash.  

Carryback of Losses

This rule applies to any company who made losses in 2018, 2019 or 2020. As a result of the Cares Act, companies who lost money during these years are able to carry back those losses for up to five years. This means that in the past, if a business has paid taxes, a company could be due money back as those losses would reduce the overall amount of tax owed.  

SMEs are advised to amend and file their corporate tax returns as soon as possible as this process can take up to six weeks. If you would like help amending and filing your corporate tax returns to benefit from this program, you should consider contacting a Tax Advisor and Consultant who specialises in US tax matters.  

Cobra Tax Credit

This is a federal law requiring employers to ensure they make health insurance available under their corporate health plans. This law states that this plan needs to remain in place for a certain period of time for any employees who lose their benefits because of either reduced hours of employment or layoffs.  

In a new provision contained within the American Rescue Plan, these Cobra benefits should continue for employees from April through to September. If a company is paying for the health insurance on behalf of laid-off employees, there is a tax credit available to them.  

Work Opportunity Tax Credit

Extended until 2025, the Work Opportunity Tax Credit provides credit on income taxes for any employer who hires a veteran, someone off of welfare or a worker that has been unemployed for longer than six months. To ensure this would be beneficial to your business, it may be worth calculating the value of the credit before making a hire.  

How SMEs Can Save on Taxes in 2021

There are evidently multiple benefits out there for small businesses thanks to the American Rescue Act that could result in decreased taxes or cash back. If you would like to know more about how these programs could positively impact your business, you should speak to a Tax Advisor who specialises in US Tax matters for more information specifically tailored to you.  

Author bio –  

Tom Griffiths is a tax advisor and consultant who specialises in US expatriate tax matters. He is a member of the Association of Taxation Technicians and an Enrolled Agent who practices before the Internal Revenue Service.  

Tom works with clients to help them better structure and streamline their taxes. Thanks to his impeccable knowledge of both US and UK engagements, he is able to advise on all aspects of trading through foreign partnerships and cooperation’s.  

Find out more here.