Payroll Tax Credits for Employers during COVID-19 crisis

Payroll Tax Credits for Employers during COVID-19 crisis

On March 18, 2020, the President signed the Families First Coronavirus Response Act which provides increased funding for various programs including paid sick and family leave as well as created new tax credits available for eligible employers in response to the national COVID-19 emergency crisis. An eligible employer, for purposes of Required Paid Sick Leave and/or Required Paid Family Leave, are small to mid-size businesses with fewer than 500 employees that are required to provide employees with paid leave either for the employee’s own health need or forced quarantine (sick leave) or for the employee to take care of their children (family leave) due to COVID-19 related reasons. As a restitution, these eligible employers will be able to claim the Required Paid Sick Leave and/or Paid Family leave Credits against their payroll tax liability for applicable paid leave during the period beginning April 1, 2020 and ending December 31, 2020.

In the case of self-employed persons, these credits may be allowed against regular income taxes. The IRS is expected to provide additional guidance soon.

Further, on March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which includes a provision for an eligible employer to claim a refundable payroll tax credit for retaining employees during the COVID-19 crisis. An eligible employer, for purposes of this Employee Retention Credit, is defined as either an employer whose business was fully or partially suspended due to governmental orders or experienced a significant decline in gross receipts. The Employee Retention Credit applies to qualified wages paid to employees during the period beginning March 13, 2020 and ending December 31, 2020.

Credit for Required Paid Sick Leave

Under the Emergency Paid Sick Leave Act, employers with fewer than 500 employees must provide paid sick leave to an employee who cannot work or telework for the following reasons:

• quarantined; or
• has been advised to self-quarantine; or
• has coronavirus symptom’s and is seeking medical diagnosis; or
• is caring for someone with coronavirus or for a child whose school or care facility is closed or whose care provider is unavailable.

Qualifying Paid Sick leave for claiming the credit is based on a per-day amount for each employee.

The credit limit, per employee, is $511 per day (up to $5,110) if for reasons and concerns related to COVID-19:

• the employee is subject to a federal, state, or local quarantine or isolation order; or
• the employee has been advised by a health care provider to self-quarantine; or
• the employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.

The credit limit, per employee, is $200 per day (up to $2,000) if for reasons and concerns related to COVID-19:

• the employee is caring for an individual as such stated above; or
• the employee is caring for his or her son or daughter if the child’s school or place of care has closed or childcare provider is unavailable; or
• the employee is experiencing other substantially similar condition specified by the Secretary of Health and Human Services.

Credit for Required Paid Family Leave

Under the Emergency Family and Medical Leave Expansion Act, employers with fewer than 500 employees must provide leave under the Family and Medical Leave Act of 1993 when there is a qualifying need related to a public health emergency. This occurs when an employee cannot work or telework and instead must care for a son or daughter under age 18, because for reasons and concerns related to COVID-19, either:

• the child’s school or place of care has been closed due to a public health emergency; or
• the child’s care provider is unavailable due to a public health emergency.

The maximum amount of paid leave eligible for credit is limited for each employee, to:

• $200 for any day for which the employee is paid qualified family leave; or
• $10,000 in total for all calendar quarters

For both the credit for Required Paid Sick Leave and Family Leave, the credit is claimed on the quarterly form 941, applied against the current quarter’s Social Security and Medicare tax imposed on the employer, reduced by other allowed payroll credits. If the credit amount is more than the imposed tax on the employer, the excess is treated as an overpayment that must be refunded currently.

If there are insufficient funds to cover the cost of qualified leave, employers can seek an expedited advance from the IRS by submitting a claim form that is expected to be released soon.

An exemption is allowed for small businesses with fewer than 50 employees if the requirements would jeopardize the business’s ability to continue. The exemption will be available based on a criterion involving going concern. More information regarding this criterion is expected to be released soon.

Employee Retention Credit

Under the CARES Act, certain employers can claim a refundable credit for each calendar quarter for which the credit is allowed against the employer’s portion of Social Security tax.

The credit is limited to 50% of qualified wages paid by the employer. For each employee, an employer can claim a credit for up to $10,000 of qualified wages paid during March 13, 2020 through December 31, 2020

Qualified wages depend on whether the employer has more or less than 100 employees. If the employer has 100 or fewer employees, all employee wages paid during the suspension period or the period of decline in gross receipts, qualify for credit, whether the employer is open for business or subject to a shutdown order. If the employer has over 100 employees, a complex calculation is applied.

With the many recent changes in place, we understand that it can be complicated and overwhelming at times. We want to reassure you that we are here to help and guide you through these challenges, especially if it may benefit you and your business. Please contact your DKC representative to discuss how these changes may apply in your specific situation.