Congress Passes Coronavirus or COVID-19 Related Tax Relief

In an effort to mitigate some of the economic impact of the COVID-19 virus, Congress passed the “Families First Coronavirus Response Act” (the Act).  The Act includes two payroll tax credits to help employers cover wages paid to employees that need time off due to the virus.  These credits are available for wages paid through Dec. 31, 2020.  Further, the legislation authorizes a short-term emergency paid sick leave program for employers with fewer than 500 employees as well as government employers.

Key Takeaways!

Sick leave credit up to either $200 or $511 per employee per day is offered to employers. Amount is dependent on whether the sick leave is used to care for a family member or the employee.

A similar credit is available to self-employed individuals, amounting to the lesser of their average daily self-employment income or $511 per day if caring for themselves, or the lesser of two-thirds of their average daily self-employment income or $200 if caring for a family member. The credit is limited to 10 days.

Family leave credit, up to $10,000 per employee, is to compensate employers for providing paid COVID-19 leave to employees.

Treasury will issue requirements needed to document eligibility and use of these credits. In the meantime, taxpayers should track employees and their reasons for utilizing this leave.

An emergency paid leave program is created offering two weeks of available paid leave to employees impacted by COVID-19.

An additional 10 weeks of paid leave is available to employees with children whose schools or day care have closed due to COVID-19.

The Details

In an effort to mitigate some of the economic impact of the COVID-19 virus, Congress passed the Families First Coronavirus Response Act (the Act). The Act includes two payroll tax credits to help employers cover wages paid to employees that need time off due to the virus. In addition, the White House is proposing an $850 billion stimulus package to try to maintain liquidity in the economy.

Families First Coronavirus Response Act

To help small businesses cope with the impact of the coronavirus pandemic, the Act provides for two payroll tax credits. It is critical to note that these credits are only available to employers with fewer than 500 employees.

Sick leave credit – not to exceed $511 per employee per day. This credit is designed to assist with the cost of providing up to two weeks of paid coronavirus-related sick leave to employees. The credit is limited to 10 days and is in effect for wages paid through December 2020. In addition, the employer cannot use this credit in connection with wages for which the employer is already receiving the employer credit for paid family and medical leave, under a provision previously enacted by the Tax Cuts and Jobs Act (TCJA). On a quarterly basis, the credit is limited to the total taxes imposed on the employer portion of the Social Security payroll tax and is refundable in certain circumstances.

– A similar credit is available to self-employed individuals, amounting to the lesser of their average daily self-employment income, or $511 per day, if caring for themselves or $200 if caring for a family member. The credit is limited to 10 days.

Family leave credit – not to exceed $10,000 per employee. This credit is designed to compensate employers for providing paid coronavirus-related family leave to employees as separately required under the Emergency Family and Medical Leave Expansion Act. Similar to the sick leave credit, this credit is also limited to the employer portion of the Social Security payroll tax on a quarterly basis but is refundable in certain circumstances.

The Act also includes several nontax provisions, which provide paid leave and food assistance to those affected by the virus, makes testing for the virus free, and expands unemployment insurance and Medicaid funding to states.

The Act instructs the Treasury Department to issue guidance on documentation requirements. Until such guidance is issued, taxpayers should track the following information:

Each employee requesting sick leave due to the COVID-19 virus; document whether the employee is caring for themselves or a family member

Compute employee wages compared to the requisite $511 or $200 per day in order to determine the actual amount of the credit

Be prepared to supply such information as part of quarterly payroll tax return or annual income tax return filings.

Coronavirus emergency leave protection

The Act creates an emergency paid leave program that requires private sector employers with fewer than 500 workers and government entities to provide two weeks of job-protected leave under the Family and Medical Leave Act (FMLA) for employees who have to:

Quarantine because of exposure to or symptoms of the coronavirus

Provide care to a quarantined family member

Provide care for child younger than 18 whose school or day care has closed in response to the coronavirus

Employees providing care for a child whose day care has closed as described above would be eligible for up to an additional 10 weeks of leave. For these employees, the first 10 days of leave could be unpaid, however, employees can choose to use vacation days, personal leave or other available paid leave. Following the 10-day period, workers would receive a benefit from their employers that will be at least two-thirds of their normal pay rate.

The legislation modifies the FMLA to allow individuals to use unpaid leave if they are diagnosed with the virus, caring for a family member or caring for a child whose school or day care has closed because of a public health emergency through Dec. 31, 2020.

Coronavirus emergency paid sick leave

Employers with fewer than 500 employees and governmental employers must provide employees with temporary paid sick time. Employees must be allowed to use this additional paid sick leave before using any other paid leave benefits.

The duration and amount depends on whether the employee is full time or part time. For a full-time employee, the employer is required to provide 80 hours of paid sick time. For a part-time or hourly employee, employer-provided paid sick leave would be the hours the employee was scheduled to work in the two-week period. For a variable-hour employee, the Act provides for a calculation based upon historical work or anticipated work.

The rate of pay depends upon the reason for the employee’s absence. For absences based upon the employee’s condition, paid sick leave will be paid at the employee’s regular rate. For absences based upon a family member’s situation, pay will be two-thirds of the employee’s regular rate.

Emergency paid sick leave is for an employee who is unable to work or telework because the employee:

Is subject to a coronavirus-related government order to go under quarantine or isolation

Has been advised by a healthcare provider to self-quarantine due to concerns related to coronavirus

Is seeking a medical diagnosis where the employee is experiencing symptoms of coronavirus

Is caring for an individual for whom quarantine or isolation is required

Has children whose school or place of care has closed or the child care provider is unavailable due to coronavirus precautions

The Act includes an important exception for certain employers. Employers of healthcare providers or emergency responders may elect to exclude those employees from emergency paid sick leave.

The Act authorizes the Labor Department to issue regulations to:

Exclude certain healthcare providers and emergency responders from paid leave benefits

Exempt small businesses with fewer than 50 employees from the paid leave requirements

Workers under a multiemployer collective bargaining agreement and whose employers pay into a pension plan will also have access to paid leave.

White House plan

Discussions on supplemental legislation have already begun. The White House appears poised to send an additional $850 billion stimulus package to Congress in the coming days. Provisions are still in the preliminary stages, but ideas being advanced include:

Revision to the TCJA rules prohibiting companies from carrying net operating losses back for two years to obtain refunds

A fix to the so-called “retail glitch” in the TCJA that intended qualified improvement property to qualify for bonus depreciation

A small-business package as well as relief for the airline industry

Treasury Sec. Mnuchin also said the administration is looking for ways to get cash to Americans “quickly.”

Closing

Tax developments will likely remain fluid in the coming days and weeks.

Check back frequently, or sign up to receive notices from my blog.

You must check with your tax professional regarding this information. This writing in no way is giving anyone tax advice. Neither I or my firm are responsible for any loss you may incur from this information.

Be smart and stay safe!

Jonathan T. Marks, CPA, CFF, CFE

Authors :

Paul Dillon, Michelle Hobbs, Mike Schiavo, Pat Balthazor and Michael Wronsky of Baker Tilly LLP

Copyright 2020 Baker Tilly LLP – All Rights Reserved

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