Tax Benefits for S Corporations (During COVID-19)

...and often the tax law isn't too kind to S corporation owners, because it limits tax breaks other business owners can take. 

However, S Corporation owners get to benefit from most of the big COVID-19 tax benefits, including:

-Payroll tax deferral
-Employee retention credit
-Tax-free disaster related payments 

Let's break these down...

You can defer your payment of your S corporation's employer share of Social Security Tax on federal tax deposits you would otherwise have to make during the period beginning March 27th, 2020 and ending December 31st, 2020. 

These payments are due in two installments:

-Installment number 1 is 50% of the tax due by December 31st, 2021
-Installment number 2 is the remaining 50% due by December 31st, 2022

Please note, though, that if your S corporation receives a PPP loan and it obtains forgiveness, it does not qualify for the payroll tax deferral provision. However, this doesn't apply until your corporation receives a decision from your lender on PPP loan forgiveness. Before that date, you can defer payroll taxes even if you apply for and receive a PPP loan. 

Your S corporation gets a refundable payroll tax credit against the employer share of employment taxes equal to 50% of its wages paid to employees between March 12, 2020-December 31, 2020. 

However, no double dipping - you can't deduct wage expenses equal to the employee retention credit you receive. 

The provision does not prevent the S corporation owner from taking the employee retention credit on his or her wages, provided that it meets one of the following requirements:

-A government order fully or partially suspended your operations during a calendar quarter due to COVID-19
-Your calendar-quarter gross receipts are less than 50% of gross receipts from the same quarter in the year prior

Please note, though, that if you receive a PPP loan, you do not qualify for this credit. 

Congress allows your S corporation to make tax-deductible disaster-related payments to its employees, and those payments are tax-free to its employees. 

None of the guidelines issued about these payments denies their favorable tax treatment to the S corporation shareholder. 

However, there is no guidance explicitly allowing the S corporation owner to take advantage of the tax-free disaster-related payments. 

If you choose to have your S corporation provide tax-free disaster-related payments to you, we recommend you implement a formal, written plan and keep excellent documentation - even though steps are not required by law.