Small and medium-sized employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing coronavirus-related leave to their employees. This relief to employees and small and midsize businesses is provided under the Families First Coronavirus Response Act (Act), signed into law on March 18, 2020.
Subsequent legislation, the CARES Act, includes a provision that delays payment of employer payroll taxes due in 2020 with half due December 31, 2021 and the rest due December 31, 2022.
These same dates and amounts apply to tax owed by self-employed individuals as well with 50 percent due December 31, 2021 and the remaining amount not due until December 31, 2022.
Paid Sick Leave Credit
For an employee who is unable to work because of coronavirus quarantine or self-quarantine or has coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.
For an employee who is caring for someone with coronavirus, or is caring for a child because the child’s school or child care facility is closed, or the child care provider is unavailable due to the coronavirus, eligible employers may claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
Paid Leave for Workers. Employees receive up to two weeks (80 hours) of paid sick leave (either 100 percent or 2/3 of employee’s pay) and expanded paid child care leave when employees’ children’s schools are closed or child care providers are unavailable due to COVID-19 related reasons. An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional 10 weeks of expanded paid family and medical leave.
Child Care Leave Credit
In addition to the paid sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the coronavirus.
Eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee’s regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed or child care is unavailable in cases where the viability of the business is threatened.
How It Works
With the goal of “fast funds,” employers will receive an immediate dollar-for-dollar tax offset against payroll taxes. Payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees. Eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS. Eligible employers will be able to claim these credits based on qualifying leave they provide between the effective date and December 31, 2020. If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able to file a request for an accelerated payment from the IRS.
Equivalent credits are available to self-employed individuals based on similar circumstances.
Eligible Businesses
Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act. Eligible employers can use the funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members. Furthermore, employers will be able to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.
Compliance
Employers are required to comply with the Act within a specified period; however, there is currently in effect, a 30-day compliance period in which enforcement actions against any employer for violations of the Act are subject to 30-day non-enforcement period as long as the employer has acted reasonably and in good faith to comply with the Act. During the 30-day period, efforts will be focused on compliance assistance.
For more information about these credits and other relief, please call.
Any accounting, business or tax advice contained in this article, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.