How Can My Startup Get Tax Relief During COVID-19?

For companies not participating in the Small Business Debt Relief Program, tax relief may be available:

  • Employee retention credit: 50% refundable tax credit applicable to the company’s share of payroll taxes on wages up to $10,000 per employee. Companies must demonstrate operations were suspended because of an official government order related to COVID-19, or that revenues dropped by 50% or more compared to Q1/2019.
  • Payroll Tax Holiday: Provides the option to defer payment of the company’s share of Social Security taxes for the period beginning March 27, 2020, and ending before January 1, 2021. Deferred amounts are repaid according to a schedule:
    • 50% by December 31, 2021
    • 50% by December 31, 2022

Tax changes under Title II of the CARES Act

Section 2303 - Relaxes the limitations on a corporation’s use of net operating losses (NOLs), which are currently subject to a taxable income limitation and cannot be carried back to reduce income in a prior tax year.

  • An NOL arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five years.
  • Temporarily removes the taxable income limitation to allow an NOL to fully offset income. These changes will allow companies to utilize losses and amend prior year returns, which will provide critical cash flow and liquidity during the COVID-19 emergency.

Section 230 - Temporarily increases the amount of interest expense businesses can deduct on their tax returns:

  • Increases the 30% limitation to 50% of taxable income (with adjustments) for 2019 and 2020.
  • This provision will allow businesses to increase liquidity with a reduced cost of capital so that they are able to continue operations and keep employees on payroll.

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Burkland offers expert CFO services, accounting services, and tax services to startups across the USA. Please reach out to us to learn more about what we can do for you, or if you have questions about federal, state, and local resources available in response to the COVID-19 outbreak.