The U.S. Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of Labor (Labor) announced that small and midsize 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 by President Trump on March 18, 2020.
The Act will help the United States combat and
defeat COVID-19 by giving all American businesses with fewer than 500 employees
funds to provide employees with paid leave, either for the employee’s own
health needs or to care for family members. The legislation will enable
employers 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.
Key Takeaways
- Paid Sick Leave for Workers
For COVID-19 related reasons, employees receive
up to 80 hours of paid sick leave and expanded paid child care leave when
employees’ children’s schools are closed or child care providers are
unavailable.
Employers receive 100% reimbursement for paid leave pursuant to
the Act.
- Health insurance costs are also included in the credit.
- Employers face no payroll tax liability.
- Self-employed individuals receive an equivalent credit.
- Fast Funds
Reimbursement will be quick and easy to obtain.
- An immediate dollar-for-dollar tax offset against payroll taxes will be provided
- Where a refund is owed, the IRS will send the refund as quickly as possible.
- Small Business Protection
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.
- Easing Compliance
- Requirements subject to 30-day non-enforcement period for good faith compliance efforts.
To take immediate advantage of the paid leave
credits, businesses can retain and access funds that they would otherwise pay
to the IRS in payroll taxes. If those amounts are not sufficient to cover the
cost of paid leave, employers can seek an expedited advance from the IRS by
submitting a streamlined claim form that will be released next week.
Background
The Act provided paid sick leave and expanded
family and medical leave for COVID-19 related reasons and created the
refundable paid sick leave credit and the paid child care leave credit for
eligible employers. 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 will be able to claim these credits based on qualifying
leave they provide between the effective date and December 31, 2020. Equivalent
credits are available to self-employed individuals based on similar
circumstances.
Paid Leave
The Act provides that employees of eligible
employers can receive two weeks (up to 80 hours) of paid sick leave at 100% of
the employee’s pay where the employee is unable to work because the employee is
quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical
diagnosis. An employee who is unable to work because of a need to care for an
individual subject to quarantine, to care for a child whose school is closed or
child care provider is unavailable for reasons related to COVID-19, and/or the
employee is experiencing substantially similar conditions as specified by the
U.S. Department of Health and Human Services can receive two weeks (up to 80
hours) of paid sick leave at 2/3 the employee’s pay. 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 ten weeks of expanded paid family and medical leave
at 2/3 the employee’s pay.
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.
Child Care Leave Credit
In addition to the 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.
Prompt Payment for the Cost of Providing Leave
When employers pay their employees, they are
required to withhold from their employees’ paychecks federal income taxes and
the employees’ share of Social Security and Medicare taxes. The employers then
are required to deposit these federal taxes, along with their share of Social
Security and Medicare taxes, with the IRS and file quarterly payroll tax
returns (Form
941 series) with the
IRS.
Under guidance that will be released next week, 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.
The 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.
If there are not sufficient payroll taxes to
cover the cost of qualified sick and child care leave paid, employers will be
able file a request for an accelerated payment from the IRS. The IRS expects to
process these requests in two weeks or less. The details of this new, expedited
procedure will be announced next week.
Examples
If an eligible employer paid $5,000 in sick
leave and is otherwise required to deposit $8,000 in payroll taxes, including
taxes withheld from all its employees, the employer could use up to $5,000 of
the $8,000 of taxes it was going to deposit for making qualified leave
payments. The employer would only be required under the law to deposit the
remaining $3,000 on its next regular deposit date.
If an eligible employer paid $10,000 in sick
leave and was required to deposit $8,000 in taxes, the employer could use the
entire $8,000 of taxes in order to make qualified leave payments and file a
request for an accelerated credit for the remaining $2,000.
Equivalent child care leave and sick leave
credit amounts are available to self-employed individuals under similar
circumstances. These credits will be claimed on their income tax return and
will reduce estimated tax payments.
Small Business Exemption
Small businesses with fewer than 50 employees
will be eligible for an exemption from the leave requirements relating to
school closings or child care unavailability where the requirements would
jeopardize the ability of the business to continue. The exemption will be
available on the basis of simple and clear criteria that make it available in
circumstances involving jeopardy to the viability of an employer’s business as
a going concern. Labor will provide emergency guidance and rulemaking to
clearly articulate this standard.
Non-Enforcement Period
Labor will be issuing a temporary
non-enforcement policy that provides a period of time for employers to come
into compliance with the Act. Under this policy, Labor will not bring an
enforcement action against any employer for violations of the Act so long as
the employer has acted reasonably and in good faith to comply with the Act.
Labor will instead focus on compliance assistance during the 30-day period.
For More Information
For more information
about these credits and other relief, visit Coronavirus
Tax Relief on IRS.gov.
Information regarding the process to receive an advance payment of the credit
will be posted next week.
