New Tax Credits

To ease the burden of COVID-19 business mandates and compliance and help employers, the President signed into law the Families First Coronavirus Response Act on March 18, 2020. The Act requires employers to provide paid sick leave and expanded family and medical leave to employees unable to work or telework due to certain circumstances related to COVID-19 and applies to employers with fewer than 500 employees. The credits listed below are for amounts paid under the mandatory leave provisions. The provisions are effective April 1, 2020 through December 31, 2020.

Payroll tax credit for required paid sick leave (the payroll sick leave credit).

Who is eligible? Employers with fewer than 500 employees required by The Emergency Paid Sick Leave Act (EPSLA) to provide 80 hours of paid sick time to employees unable to work for virus-related reasons.

Paid sick pay max? The pay is up to $511 per day with a $5,110 overall limit for each employee directly affected by the virus and up to $200 per day with a $2,000 overall limit for each employee that is a caregiver.

Employer benefit? An election to take a tax credit corresponding with the EPSLA leave paid is applied against the employer’s payroll taxes which include federal income taxes, the employee and employer share of Social Security and Medicare taxes regarding all employees. Employers with a credit in excess of the payroll taxes may request an accelerated payment from the IRS. The maximum credit amount is equal to the $511/$5,110 and $200/$2,000 per-employee limits described above. The credit can be increased by certain employer expenses in connection with a qualified health plan .

Payroll tax credit for required paid family leave (the payroll family leave credit).

Who is eligible? Employers with fewer than 500 employees required to provide both paid and unpaid leave under The Emergency Family and Medical Leave Expansion Act (EFMLEA). The leave generally is available when an employee must take off to care for the employee’s child under age 18 because of a COVID-19 emergency declared by a federal, state, or local authority that either (1) closes a school or childcare place or (2) makes a childcare provider unavailable.

Paid sick pay max? Generally, the first 10 days of leave can be unpaid and then paid leave is required, pegged to the employee’s pay rate and pay hours. However, the paid leave can’t exceed $200 per day and $10,000 in the aggregate per employee for all calender quarters.

Employer benefit? The tax credit corresponding with the EFMLEA leave paid is a credit against the employer’s payroll taxes which include federal income taxes, the employee and employer share of Social Security and Medicare taxes regarding all employees. Employers with a credit in excess of the payroll taxes may request an accelerated payment from the IRS. The credit generally tracks the $200/$10,000 per employee limits described above.

Provisions common to both credits

Are self-employed individuals eligible? The Act provides a refundable income tax credit (including against the taxes on self-employment income and net investment income) for payroll sick leave and the payroll family leave of a self-employed person by treating the self-employed person both as an employer and an employee for credit purposes.

When is the benefit available? The credit applies to wages paid in a period (1) beginning on April 1, 2020 and (2) ending on December 31, 2020. For self-employed individuals, the credit is claimed on the 2020 income tax return and can reduce estimated tax payments.

Any exemptions? A business with less than 50 employees is exempt from providing the paid sick leave and the expanded family and medical leave requirements if providing the leave would jeopardize the viability of the businss as a going concern. No credit would be available.

The U.S. Department of Labor (DOL) has Questions and Answers relating to the Families First Coronavirus Response Act. Click [here] to access the DOL website. You may also contact us at 401-831-0200.

March 31, 2020

My company has less then 50 employees. We are considered essential, so we are open however, our hours have been reduced in order to decrease exposure to the public and also due to decreased demand for our services currently. So, my employees are still working, but are getting fewer hours. If I choose to pay them to make up for their list hours related to coronavirus, can my business qualify for a tax credit?

April 1, 2020

The credits in the post are not available when a business doesn’t have any employees on sick or family and medical leave with COVID-19 issues. However, there is another credit called the employee retention credit that is available to a business that is fully or partially suspended during the calendar quarter due to the Governor limiting commerce, travel or group meetings due to COVID-19. This credit also applies to a business whose gross receipts for a quarter in 2020 is less than 50% of the gross receipts of the same quarter of 2019 and ends with the quarter where gross receipts are greater than 80% of the gross receipts for the same quarter in the prior year. For example, assume the gross receipts for the first and second quarters of 2020 are each $40,000 and the first and second quarters of 2019 the gross receipts were each $100,000. Assume the gross receipts for the third quarter of 2020 are $85,000 and the gross receipts for the third quarter of 2019 was $100.000. You would be eligible for the first quarter of 2020 through December 31, 2020. The wages eligible for the credit are the wages paid after March 12, 2020 through the period of being fully or partially shut down or during the period of the revenue decline as indicated above. The employee wages to consider can’t exceed $10,000. The amount of the credit if 50% of qualified wages and reduces the amount of payroll taxes you transmit to the government. Special rules apply when the full time employee count exceeds 100. See the IRS website for frequently asked questions. https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act Please call the office for additional information.

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