On March 20, 2020, the Internal Revenue Service (“IRS”) and the U.S. Department of Labor announced that small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse, dollar-for-dollar, the cost of providing Coronavirus (COVID-19) related leave to their employees. This relief to employees and small and midsize businesses is provided under the Families First Coronavirus Response Act (the “Act”), signed into law on March 18, 2020. All employers with fewer than five hundred (500) employees may take advantage of these credits if the employers provide employees with paid leave, either for the employee’s own health needs or to care for employee’s family members.
The Act 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 five hundred (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 employees between the Act’s effective date (April 1, 2020) and December 31, 2020 (the Act also provides equivalent credits to self-employed individuals under similar circumstances).
Paid Sick Leave Credit
For an employee who is unable to work (including telework) as a result of the COVID-19 pandemic, eligible employers may receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to five hundred eleven dollars ($511) per day and five thousand one hundred ten dollars ($5,110) in the aggregate, for a total of ten (10) days—equivalent to eighty (80) hours or two (2) full-time weeks on the job. 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 (2/3) of the employee’s regular rate of pay, up to two hundred dollars ($200) per day and two thousand dollars ($2,000) in the aggregate, for up to ten (10) days. The Coronavirus Aid, Relief, and Economic Security Act signed into law on March 27, 2020 (the "CARES Act"), updates the paid sick leave and child care leave provisions of the Act. Click here for more information on the CARES Act tax summary: https://shuffieldlowman.com/tax-update-cares-act-tax-provisions/.
Child Care Leave Credit
Eligible employers who provide child care leave pay because their employees are unable to work because of a need to care for a child whose school/child care facility is closed or whose child care provider is unavailable due to the Coronavirus may receive a refundable child care leave credit. This credit is equal to two-thirds (2/3) of the employee’s regular pay, capped at two hundred dollars ($200) per day or ten thousand dollars ($10,000) in the aggregate (note that up to ten (10) weeks of qualifying child care leave can be counted towards the child care leave credit).
Health Insurance Coverage
In addition to the sick leave credit and the child care leave credit discussed above, eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the sick leave and/or child care leave period.
Payment of Credits
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 the employer’s share of Social Security and Medicare taxes, with the IRS. Eligible employers who pay qualifying sick and/or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and/or child care leave that they paid, rather than deposit them with the IRS. If there are not sufficient payroll taxes to cover the cost of qualified sick and/or child care leave paid, employers will be able to file a request for an accelerated payment from the IRS. Additional information on this process will be disclosed in forthcoming IRS guidance. The CARES Act updates the payroll provisions of the Act.
Small businesses with fewer than fifty (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 Department of Labor will provide guidance to explain and articulate this exemption in the near future.
ShuffieldLowman’s Corporate and Tax team is here to help clients during this uncertain time. We can answer your questions, assist you in overcoming the current obstacles, and help navigate the proverbial waters of the new tax laws.