Posted by JG Tax and Financial Services

Government Announces Paid Leave for Coronavirus For Workers And Tax Credits For Small And Medium-Sized Businesses

Government Announces Paid Leave for Coronavirus For Workers And Tax Credits For Small And Medium-Sized Businesses

On March 20, 2020, the United States Department of the Treasury, The Internal Revenue Service (IRS), and the US Department of Labor (DOL) announced that small and medium-sized businesses would soon be eligible for two new payday tax credits. Both loans are designed to reimburse you immediately, in full, dollar for dollar, for the cost of providing Coronavirus leave to your employees. 

The rescue of small and medium-sized businesses is ensured by the Family First Coronavirus Response Act (FFCRA or Law), signed by President Trump on March 18, 2020. The law aims to help the United States to fight and defeat COVID-19 by funding all American businesses with fewer than 500 employees to provide paid leave for their employees or the health needs of their employees or to care for family members. The legislation intends to allow employers to keep their employees on wages, ensuring that they are not forced to choose between wages and the public health measures necessary to combat the virus.

For small and medium-sized businesses interested in managing cash flow and maintaining business life, these new tax credit provisions offer significant relief in cash flow, which is a big question. The answer is no different from what many lawyers and accountants initially offer when responding, and that is it "depends." 

A calculation of the potential benefits will likely require coordination between senior company officials, their lawyers in the area of labor law, their licensed public accountants and payroll processors to determine the amount and claim the benefit. The results depend very much on the unique set of facts and circumstances of each business; the benefits may or may not provide the level of assistance involved in high-level discussions by the government and other countries.

The law requires paid medical leave and extended family leave and sick leave for reasons related to COVID-19 in small and medium-sized businesses that may not have previously offered or were to provide these benefits. To offset the cost of these requirements, the law creates a refundable credit paid for medical leave and a paid credit for parental leave for employers with qualified employees. It is important to understand that not all employee payments generate loans. Only payments that meet the parameters of the requirements generate a credit.

Employers affected by the provisions include for-profit businesses and tax-exempt organizations with fewer than 500 employees, who must pay paid emergency leave and paid family and emergency leave under the law. Eligible employers can apply for these credits based on the qualified license provided between the effective date and December 31, 2020. Most consultants believe that the effective date for implementing the ACT's requirements is likely on April 2, 2020.

Small businesses with fewer than fifty employees are eligible for exemption from licensing requirements related to school closings or unavailability of day centers, where the requirements would jeopardize the ability of the business to continue. The DOL must provide exemptions based on simple and transparent criteria for the companies eligible for this exemption. 

Paid Sick Leave and Sick Leave Credit

The law provides that employees of qualified employers can benefit from two weeks (up to 80 hours) of paid medical leave at 100% of the employee's salary. The law obliges the employer to pay sickness allowance under the conditions of this law when an employee cannot work (or communicate) due to the need for leave because of the employee:

    •    You are subject to federal, state, or local quarantine or COVID-19 isolation order.

    •    A health care professional has recommended quarantine.

    •    You have symptoms and seek a medical diagnosis.

    •    Take care of a person quarantined under articles 1 or 2 above.

    •    Take care of children whose school or kindergarten is closed due to COVID-19.

    •    You are faced with a similar condition specified by HHS, DOL or Treasury

The required wage and salary replacement required by ACT is generally:

    •    For reasons 1 to 3 above: the average rate of pay for employees, but with a limit of $ 511 per day and $ 5,110 in total.

    •    For points 4 to 6 above, 2/3 of the rate of remuneration of ordinary employees, but with a maximum limit of $ 200 per day and $ 2,000 in total.

Special calculation rules apply to part-time employees

In general, the credit generated by the payment of the above articles is equivalent to the total amount of the salary due to illness or the salary paid to the specific employee eligible for FFCRA, in addition to the proportional cost of group health insurance paid by the employer on behalf of this employee under the FFCRA. The credit obtained above can offset the employer's total tax rate for all employees.

Paid FMLA Child Care Leave and Child Care Leave Credit

In addition to emergency medical leave, an employee who cannot work due to the need to care for kids whose school is closed or when a child care provider is not available due to the COVID-19 reasons, in some cases you may receive up to ten additional weeks of extended family leave. This applies when an employee cannot work due to the need for leave to care for a daughter or son under the age of 18. Leave with pay under this provision begins after the employee leaves for ten days and can be coordinated with medical leave, which pays up to 10 days.

The law requires the employer to pay 2/3 of the employee's salary to the eligible employee but is limited to $ 200 per day, with a maximum of $ 10,000 to all employees.

Claiming the Credits

IRS, on its website, indicates that employers pay for illnesses or eligible children can withhold the amount of payroll tax equal to the amount of leave and medical care to the child they paid for.

Payroll taxes available for source deduction appear to include federal source deductions, the share of social security employees and Medicare taxes, and the employers' share of social security and Medicare taxes for all employees.

If there are not enough payroll taxes for employers to cover sick leave and medical expenses, employers can file an accelerated payment request with the IRS. The IRS has announced its intention to process these requests within two weeks or less.

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