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New Employer Tax Credits, Employee Paid Leave Provisions Related to COVID-19

Posted by Concannon Miller on Tue, Mar 24, 2020

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New Employer Tax Credits, Employee Paid Leave Provisions Related to COVID-19The novel Coronavirus is changing the business landscape at lightning speed.

While governments continue to work to blunt the negative impacts, there is already one new provision designed to help employers assist workers needing to take leave for either health or family care reasons.

The Families First Coronavirus Response Act, signed into law last week, allows small and midsized employers to use two new refundable payroll tax credits aimed at immediately reimbursing them, dollar for dollar, for the cost of providing Coronavirus-related leave to their employees.

The new law also mandates paid leave benefits for small business employees affected by the COVID-19 emergency. Learn some details on the new law below.

The new law grants tax credits to small employers to cover payments to eligible employees while they take time off under the mandatory emergency COVID-19 paid sick leave and paid family leave provisions. These provisions apply to employers with less than 500 employees.

The new law takes effect April 1, 2020. 

View the Key Takeaways of the New Families First Coronavirus Response Act here

Emergency Paid Leave Details

  • Emergency paid sick leave under the new law is limited to $511 per day for up to 10 days (up to $5,110 in total) for an employee who's in COVID-19 quarantine or seeking a COVID-19 diagnosis.
  • An employee can also receive emergency COVID-19 paid sick leave of up to $200 per day for up to 10 days (up to $2,000 in total) to care for a child whose school or childcare location has been closed or whose childcare is unavailable due to COVID-19.
  • In addition, the law gives an employee the right to take up to 12 weeks of job-protected family leave if the employee or a family member is in COVID-19 quarantine or if the school or childcare location of the employee's child is closed due to the outbreak. 
  • The employer must pay at least two-thirds of the employee's usual pay, up to a maximum of $200 per day, subject to an overall maximum of $10,000 in total family leave payments.
  • Employers with fewer than 50 employees may qualify for an exemption from paid child care leave requirements. 


Tax Credits to Reimburse Employers

To help employers cover these now-mandatory emergency leave payments, the law allows a refundable tax credit equal to 100% of qualified sick leave wages and family and medical leave wages paid by the employer.

  • The credit applies only to eligible leave payments made during the period beginning on a date specified by Treasury Secretary Mnuchin and ending on December 31, 2020. 
  • The credit also offsets - uncapped - the employer contribution for health insurance premiums for the employee for the period of leave.
  • The credit can or will be used to offset the Social Security tax component of the employer's FICA tax bill. Any excess credit is refundable, meaning the government will issue a check to the employer for the excess. 


Important:
The credit isn't available to employers that are already receiving the pre-existing credit for paid family and medical leave under Internal Revenue Code Section 45S.

LEARN MORE: Check out Concannon Miller's Comprehensive Coronavirus Resource Page

New Tax Credit Examples

Check out these two examples on how the credits might be used:

If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in OASDI taxes, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit to reimburse itself for 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 OASDI taxes, the employer could use the entire $8,000 of taxes in order to reimburse itself for qualified leave payments and file a request for an accelerated credit for the remaining $2,000.

 

Employer FICA Tax Relief

Qualified sick leave and family leave payments mandated by the new law are exempt from the 6.2% Social Security tax component of the employer FICA tax on wages. Employers must pay the 1.45% Medicare tax component of the FICA tax on qualified sick leave and family leave payments, but they can claim a credit for that outlay. 

READ MORE: Leadership Tips for Business Owners: Plan, Manage Cash & Show Concern for Employees

Credits for Self-Employed People

For a self-employed individual who's affected by the COVID-19 emergency, the new law allows a comparable refundable credit against the individual's federal income tax bill. If the credit exceeds the individual's federal income tax bill (including the self-employment tax), the excess will be refunded via a check from the government. Please contact us for more information on the self-employed credits. 

What is Still Unknown

The Department of Labor is currently creating interim rules which will provide guidance on how the law will work. Until those rules are implemented,  answers to many specific questions will remain unknown. When the rules are released sometime prior to April 2, the guidance will provide the clarity necessary to fully implement the new law.

Some of the unanswered questions include:

  • How the 500 employee threshold will be defined, including if part-time employees count
  • Also if the 500 accounts for seasonal employees or employees affected by Coronavirus-related layoffs
  • How multiple, related companies will be treated with regard to employee count


Moving Target

This article only covers some of the COVID-19-related tax changes that have already been finalized. Other types of non-tax federal relief have also been made available and many states have announced their own COVID-19 relief.

More federal measures and additional guidance are expected soon. Contact us to discuss financial relief measures that apply in your specific situation.   

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© 2020

Topics: Business tax planning, 2020 Coronavirus

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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