Tax Developments for Employers Impacted by COVID-19

As you may know, the President recently signed the Families First Coronavirus Response Act (FFCRA) and Coronavirus Aid, Relief and Economic Security Act (CARES) into law. The Acts contains several provisions to help employers and employees during the coronavirus crisis including:

Delayed payment of employer payroll taxes

Taxpayers will be able to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Taxes that can be deferred include the 6.2% employer portion of the Social Security payroll tax. The relief is available for employers receiving loans under the Paycheck Protection Program, but only until the loan is forgiven. At that point, no further payroll tax payments can be delayed.

For self-employed individuals, the 50% of self-employment tax liability (including any related estimated tax liability) may be delayed.

Employee retention credit for employers

Eligible employers can qualify for a refundable credit against, generally, the employer’s 6.2% portion of the Social Security payroll tax for 50% of certain wages (below) paid to employees during the COVID-19 crisis. The credit is not available to employers receiving Small Business Interruption Loans including loans under the Paycheck Protection Program.

The credit is available to employers carrying on business during 2020, including non-profits, whose operations for a calendar quarter have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also available to employers who have experienced a more than 50% reduction in quarterly receipts, measured on a year-over-year basis relative to the corresponding 2019 quarter, with the eligible quarters continuing until the quarter after there is a quarter in which receipts are greater than 80% of the receipts for the corresponding 2019 quarter.

For employers with more than 100 employees in 2019, the eligible wages are wages of employees who aren’t providing services because of the business suspension or reduction in gross receipts described above. For employers with 100 or fewer full-time employees in 2019, all employee wages are eligible, even if employees haven’t been prevented from providing services. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in eligible wages and compensation paid by the employer to an employee. Thus, the credit is a maximum $5,000 per employee.

Wages don’t include (1) wages taken into account for purposes of the payroll credits provided by the earlier FFCRA for required paid sick leave or required paid family leave, (2) wages taken into account for the employer income tax credit for paid family and medical leave or (3) wages in a period in which an employer is allowed for an employee a work opportunity credit. An employer can elect to not have the credit apply on a quarter-by-quarter basis.

The IRS has authority to advance payments to eligible employers and to waive penalties for employers who do not deposit applicable payroll taxes in reasonable anticipation of receiving the credit. The credit is provided for wages paid after March 12, 2020 through December 31, 2020.

Accelerated payment of credits for required paid sick leave and family leave

As we mentioned in a previous email, the CARES Act authorizes the IRS broadly to allow employers an accelerated benefit of the paid sick leave and paid family leave credits allowed by the FFCRA by, for example, not requiring deposits of payroll taxes in the amount of credits earned. Please be sure to report any such paid leave to us in the ordinary course of reporting your payroll information so that we can assist you in tracking it.

We hope this information is useful. If you have questions about this information, or would like to talk about how it applies to your business, please contact our office.