Congress has introduced several provisions to help businesses with their taxes during the ongoing COVID-19 pandemic. Some of these provisions apply to S corporations and can be very helpful in reducing their tax liability.
Payroll Tax Deferral
S corporations can defer their share of Social Security tax on federal tax deposits with this program. Instead of the usual payment schedule, S corporations can defer these taxes in two instalments. They can pay 50% of the tax by December 31, 2021, and the other half by December 31, 2022.
This program is also applicable for salaries paid to S corporation owners.
The payroll tax deferral program does not apply to S corporations that receive a Paycheck Protection Program and obtain loan forgiveness. However, there is a loophole that S corporations can use to use the program. If an S corporation hasn’t received a decision from its lender about PPP loan forgiveness, it can defer its payroll taxes. Once it gets a decision, it is no longer eligible for the deferral.
Employee Retention Credit
S corporations can get a refundable payroll tax credit against their share of employment taxes. The tax credit equals 50% of the total wages these corporations pay to employees after March 12, 2020 and before January 1, 2021. However, there are some provisions attached to the employee retention credit program. As with the payroll tax deferral, S corporations that have received PPP loans do not qualify for the employee retention credit program.
Tax-free Disaster Payments
Under this program, S corporations can make tax-deductible disaster-related payments to their employees. These payments are also tax-free to employees. The guidance related to this program does not limit the payments to employees only. Therefore, S corporation owners may also benefit from it. However, it also doesn’t explicitly allow it.