Coronavirus-related paid leave for workers and tax credits for small and midsize businesses

by | Mar 23, 2020 | Federal Tax, Tax News | 0 comments

By Jamie Overberg

Treasury, IRS and Labor announce plan to implement Coronavirus-related paid leave for workers and tax credits for small and midsize businesses to swiftly recover the cost of providing Coronavirus-related leave.

Summary

The Treasury Department, Internal Revenue Service, and the U.S. Labor Department announced that small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees. This relief to employees and small and midsize businesses is provided under the Families First Coronavirus Response Act, signed by President Trump on March 18, 2020.

How it Works

U.S. businesses with fewer than 500 employees can use the funds to provide employees with paid leave, either for the employee’s own health care needs or to care for their family members. Eligible employers will be able to claim these credits based on qualifying leave they provide between the effective date and Dec. 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances.

All American businesses with fewer than 500 employees will receive funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members. The legislation will enable employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.

The Takeaway

This credit is a great benefit for the hardest hit industries such as restaurants, retailers, and hotels. It does focus on the small, independent business as it available to companies with less than 500 associates.  There are also caps on maximum benefits per associate.  

This credit has to be claimed on payroll reporting, such as Form 941, instead of income tax filings which expedites the cash benefit.  If you outsource your payroll function, work with your provider to maximize your credit.  If you process payroll in house, reach out to irs.gov or your tax preparer for guidance.

Key Benefits & Details (Source: IRS.gov)

Paid Sick Leave for Workers 

  • For COVID-19 related reasons, employees receive up to 80 hours of paid sick leave and expanded paid child care leave when employees’ children’s schools are closed or child care providers are unavailable.
  • Complete Coverage
    • Health insurance costs are also included in the credit.
    • Employers face no payroll tax liability.
    • Self-employed individuals receive an equivalent credit.
  • Employers receive 100% reimbursement for paid leave pursuant to the Act.
  • Fast Funds
    • An immediate dollar-for-dollar tax offset against payroll taxes will be provided
    • Where a refund is owed, the IRS will send the refund as quickly as possible.
    • Reimbursement will be quick and easy to obtain.
  • Small Business Protection. Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed, or child care is unavailable in cases where the viability of the business is threatened.
  • Easing Compliance. Requirements subject to 30-day non-enforcement period for good faith compliance efforts.

To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.

Background

The Act provided paid sick leave and expanded family and medical leave for COVID-19 related reasons and 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 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 between the effective date and Dec. 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances.

For more information about these credits–including details on paid leave, paid sick leave credit, child care leave credit, prompt payment, examples, small business exemption, non-enforcement period–and other relief, visit Coronavirus Tax Relief on IRS.gov. Information regarding the process to receive an advance payment of the credit is expected next week.   

Let’s Talk Tax Credits

Jamie Overberg can be reached at joverberg@sarahf14.sg-host.com or 720.227.0093. Follow Jamie on LinkedIn.

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