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EMPLOYER TAX CREDITS FOR SICK LEAVE ETC


Lee B

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Copied from the Journal of Accountancy:

 

"The coronavirus relief bill signed by President Donald Trump late Wednesday contains, among its many
provisions, several tax credits for employers who provide paid sick leave or family or medical leave for their
employees who miss work for various coronavirus-related reasons. The Families First Coronavirus Response
Act, H.R. 6021, passed the House of Representatives on Monday by unanimous consent and passed the
Senate Wednesday by a vote of 90–8.


Here is a look at its tax credit provisions

.
Payroll tax credit for required paid family leave


Subject to certain limitations, the bill provides an employer payroll tax credit that equals 100% of the qualified
family leave wages paid by the employer under the portion of the bill known as the Emergency Family and
Medical Leave Expansion Act (Division C of the bill). The Emergency Family and Medical Leave Expansion
Act requires employers with fewer than 500 employees to provide public health emergency leave under the
Family and Medical Leave Act (FMLA), P.L. 103-3, when an employee is unable to work or telework due to a
need for leave to care for a son or daughter under age 18 because the school or place of care has been
closed, or the child care provider is unavailable, due to a public health emergency related to COVID-19.
(Employers with fewer than 50 employees can be exempted from the requirement.)
The credit is available for eligible wages paid during a period that begins on a date starting on a date within
15 days of enactment (to be designated by Treasury) and through Dec. 31, 2020. The credit would apply
against the employer portion of Sec. 3111(a) old age, survivors, and disability insurance (OASDI) taxes or
Sec. 3221(a) Tier 1 Railroad Retirement Act excise taxes. The credit is generally available for up to $200 in
wages for each day an employee receives qualified family leave wages. A maximum of $10,000 in wages per
employee would be eligible for the credit.


If an employer claims the credit, the employer’s gross income will be increased by the amount of the credit
(meaning the credit is not taken into account for purposes of determining any amount allowable as a payroll
tax deduction, deduction for qualified family leave wages, or deduction for health plan expenses), and no
credit will be allowed for wages for which a Sec. 45S family and medical leave credit is claimed. The credit
would not apply to the federal government, the government of any state or any subdivision of a state, or any
agencies or instrumentalities of these entities. Employers also could elect not to apply the new provision for
any calendar quarter.


The credit would not apply to the U.S. government, the government of any state or any subdivision of a state,
or any agencies or instrumentalities of the foregoing. Employers can elect not to apply the new provision for
any calendar quarter.


Self-employed individuals: Eligible self-employed individuals would be eligible for a refundable credit
against income tax for qualified family leave equivalent amounts. An eligible self-employed individual is an
individual who regularly carries on any trade or business (as defined in Sec. 1402) and would be entitled to
receive paid leave under the Emergency Family and Medical Leave Expansion Act if the individual were an
employee.


Wages paid under the Emergency Family and Medical Leave Expansion Act are not considered wages for
purposes of the Sec. 3111(a) OASDI tax or the Sec. 3221(a) Railroad Retirement Act excise taxes.
Payroll tax credit for required paid sick leave


Subject to certain limitations, the bill provides an employer payroll tax credit that equals 100% of the qualified
sick leave wages paid by the employer under the portion of the bill known as the Emergency Paid Sick Leave
Act (Division E of the bill). The Emergency Paid Sick Leave Act requires employers with fewer than 500
employees to provide up to 80 hours of paid sick time through the end of this year if the employee is unable
to work due to being quarantined or self-quarantined or having COVID-19 or because the employee is caring
for someone who is quarantined or self-quarantined or has COVID-19 or if the employee is caring for children
whose school has been closed because of COVID-19 precautions. (Employers with fewer than 50 employees
can be exempted from the requirement.)


The credit is effective for sick leave wages paid starting on a date within 15 days of enactment (to be
designated by Treasury) and through Dec. 31, 2020. The credit will apply against Sec. 3111(a) OASDI taxes
or Sec. 3221(a) Tier 1 Railroad Retirement Act excise taxes. The credit is generally available for up to $511
in wages (for workers who are quarantined or self-quarantined or who have COVID-19) and wages of up to
$200 for other workers for each day an employee receives qualified sick leave pay. The credit would be
available for up to 10 days per calendar quarter.


To prevent double benefits, employers’ gross income will be increased by the amount of the credit (meaning
the credit is not taken into account for purposes of determining any amount allowable as a payroll tax
deduction, deduction for qualified sick leave wages, or deduction for health plan expenses), and no credit will
be allowed for wages for which a Sec. 45S family and medical leave credit is claimed. The credit would not
apply to the federal government, the government of any state or any subdivision of a state, or any agencies
or instrumentalities of these entities. Employers also could elect not to apply the new provision for any
calendar quarter.


The credit can be increased by certain qualified health plan expenses of the employer that are allocable to
qualified sick leave wages for which the credit is allowed.


Self-employed individuals: The bill also provides eligible self-employed taxpayers with a refundable credit
against income tax for qualified sick leave equivalent amounts. An eligible self-employed individual is an
individual who regularly carries on any trade or business (as defined in Sec. 1402) and would be entitled to
receive paid leave under the Emergency Paid Sick Leave Act if the individual were an employee."

Some aspects of this will be tricky especially for my larger clients who already provide sick leave.

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Can someone help me unpack this as it applies to SE individuals?   They get a tax credit.   Can that credit be used against regular tax or only SE Tax? 

I know it is early, and there is not a lot of guidance, but we are already getting questions from our SE folks.   They seem to think they can call the EDD and get a check like their friends who are employed.   

Tom
Modesto, CA

 

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I think that self-employed people who would be eligible for paid sick leave if they were employees instead of self-employed are entitled to a refundable credit against income tax BUT i don't know how you get a refundable credit before the tax return is filed.  I really haven't worried too much about this since I am more concerned about getting current taxes out the door before I have to completely close my doors. 

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Here is the most current guidance as of late yesterday:

 

IR-2020-57, March 20, 2020

WASHINGTON — Today the U.S. Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of Labor (Labor) 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 (Act), signed by President Trump on March 18, 2020.

The Act will help the United States combat and defeat COVID-19 by giving all American businesses with fewer than 500 employees 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.

Key Takeaways

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

Employers receive 100% reimbursement for paid leave pursuant to the Act.

Health insurance costs are also included in the credit.

Employers face no payroll tax liability.

Self-employed individuals receive an equivalent credit.

Fast Funds

Reimbursement will be quick and easy to obtain.

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.

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 December 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances.

Paid Leave

The Act provides that employees of eligible employers can receive two weeks (up to 80 hours) of paid sick leave at 100% of the employee's pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis. An employee who is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or child care provider is unavailable for reasons related to COVID-19, and/or the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services can receive two weeks (up to 80 hours) of paid sick leave at 2/3 the employee's pay. An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional ten weeks of expanded paid family and medical leave at 2/3 the employee's pay.

Paid Sick Leave Credit

For an employee who is unable to work because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a refundable sick leave credit for sick leave at the employee's regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.

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 of the employee's regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Child Care Leave Credit

In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus, eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee's regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Prompt Payment for the Cost of Providing Leave

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 their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns (Form 941 series) with the IRS.

Under guidance that will be released next week, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.

The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.

If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced next week.

Examples

If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.

If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.

Equivalent child care leave and sick leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.

Small Business Exemption

Small businesses with fewer than 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 exemption will be available on the basis of simple and clear criteria that make it available in circumstances involving jeopardy to the viability of an employer's business as a going concern. Labor will provide emergency guidance and rulemaking to clearly articulate this standard.

Non-Enforcement Period

Labor will be issuing a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the Act. Under this policy, Labor will not bring an enforcement action against any employer for violations of the Act so long as the employer has acted reasonably and in good faith to comply with the Act. Labor will instead focus on compliance assistance during the 30-day period.

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Gail any word from how va expects to handle all this mess? I have not seen anything yet. A lot of my still to come clients got word of the extension and are afraid to come out. I have a few in nursing homes that I can't get into. Are you still running?(close doors)

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let me try asking this again using a couple real world scenarios.

1.  I have a client who is a hairdresser.   Sch C.  No employees.   Non-essential.  Makes quarterly estimated payments.   How do I get her the credit?

2.  I have a client who works a regular job and has a sch. C business.   Has employees.   Is laid off from work.   Gets 2 weeks sick pay, but has to give his employees two weeks of sick pay.   

What do I do for each of these clients.

Thanks

Tom
Modesto, CA

 

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"Self-employed individuals: The bill also provides eligible self-employed taxpayers with a refundable credit
against income tax for qualified sick leave equivalent amounts. An eligible self-employed individual is an
individual who regularly carries on any trade or business (as defined in Sec. 1402) and would be entitled to
receive paid leave under the Emergency Paid Sick Leave Act if the individual were an employee."

More detailed guidance is supposedly going to be released this coming week.

At the very least, I suspect they will be able to reduce their quarterly estimated payments.

This may be a bit of a stretch, but there could advance refunds against their 2020 tax return.

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Have not yet heard from customers.  However, friends are choosing to layoff employees since it gets the employees money faster than the first payroll after April 2, and since they cannot carry the employees until then, or after the PSL is done.  While the effort is appreciated, for employer/employees, the complication seems, so far, to be such, most are choosing other methods.  The other issue is for the many employers who make their deposits with each payroll, and not having any taxes due to use to fund the sick leave.  I just don't see this benefiting many hourly employees at present.  As I saw once (not reconfirmed) this will be something available again upon declaration, it could help with a short term future issue.

For SE, it should help.

If there was a known end date to the quarantines, then we might have something, but as of this writing, no solid end date is known.

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4 hours ago, Medlin Software said:

 

If there was a known end date to the quarantines, then we might have something, but as of this writing, no solid end date is known.

I skimmed the law which is available online. The coronavirus related sick leave is effective 4/2/20 thru 12/31/20. 

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26 minutes ago, cbslee said:

I skimmed the law which is available online. The coronavirus related sick leave is effective 4/2/20 thru 12/31/20. 

That is the window the emergency paid leave is available.  From what I am hearing, many are already laid off, and will not be eligible for paid leave, just (hopefully) UI.  Those who are still employed and eligible as of 4/2 may benefit, if they need the time off.  The PSL is two weeks max.  The FMLA is 12 weeks, 10 paid.  Both are likely better than UI, assuming health care costs can be covered.  The employer has to front the money, which is not going to be easy for many.  (All of this is subject to new guidance, so I reserve the right to change my thoughts!)

The simple math, and employers not wanting to front money, apply for exemptions, and deal with other paperwork, is many will get layed off, since they can get UI, food stamps, and medical coverage while unemployed.  If there is ever another crisis, the emergency leave rule can be implemented by declaration, and should be nearly instant, or at least faster than a month.

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On 3/21/2020 at 10:38 AM, cbslee said:

If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.

@Medlin Software Do we know what the mechanism is for claiming the accelerated credit?  I figure you will be dealing with this right now.

At my day job, we are going to run into this.   We furloughed 151 employees.  There are about 15 employees still on payroll.  We pay employees bi-weekly and are a semi-weekly depositor.   If all our furloughed employees claim the 2 weeks of Paid Sick Leave, we will have a large credit on our next payroll submission.   We will not use up the credit and would like to get it refunded as soon as possible (because, like, there is no income while we are shut down and money is tight).   

How do we get the refund as fast as possible?   I went to the IRS website and did not see anything, but I am the worst at finding these things?

Any help appreciated.

Tom
Modesto, CA

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13 minutes ago, BulldogTom said:

@Medlin Software Do we know what the mechanism is for claiming the accelerated credit?  I figure you will be dealing with this right now.

At my day job, we are going to run into this.   We furloughed 151 employees.  There are about 15 employees still on payroll.  We pay employees bi-weekly and are a semi-weekly depositor.   If all our furloughed employees claim the 2 weeks of Paid Sick Leave, we will have a large credit on our next payroll submission.   We will not use up the credit and would like to get it refunded as soon as possible (because, like, there is no income while we are shut down and money is tight).   

How do we get the refund as fast as possible?   I went to the IRS website and did not see anything, but I am the worst at finding these things?

Any help appreciated.

Tom
Modesto, CA

Only applies to currently employed folks.  Those laid off are not eligible for the emergency PSL.  I read this (from the star unfortunately) as being more for the next event.  It remains on the books and can be enabled by declaration as needed.  There are some credits when rehiring.  (Make sure to get new W4 forms, I9, report new hire, keep any PTO or other balances required, etc.  Better safe than sorry!)

The business owners I have spoken to who had a similar decision almost all went for lay offs.  Not only to try to keep the business viable, but to get the most money to their former employees as soon as possible (and making them eligible for health care too).  Some, who are not facing stay at home or school closures at present, are even considering layoffs before April, then seeing how their locality proceeds.  Catch-22 for all concerned, no way already in place to handle the situation, and no way to fund it cleanly for employers.  For the future, employers have to be ready to float full wages for 2 weeks at any time, upon declaration.  (Another employer burden, like mandated sick time with no notice or documentation required.)

Those who went with reduced hours are facing the same numbers game now, lay off before April, or play the credit "game".  Few have a meaningful balance due so most will have to be paying out of pocket (loan, charge cards, whatever they can scrape up) and hope reimbursement is speedy.  Rinse and repeat until the PSL runs out.

The "rub" is the law is in place, but the mechanisms are not, such as the exemption and reimbursement processes.  Thus the 30 day "good faith" rule, since even those who write and disseminate the rules know the mechanisms will not be in place in time.

My suggestion is to not read the news accounts and opinions.  Read multi-person opinions, such as APA and other trade/professional group opinions and do what is best for the business to survive.  Business fails trying to do good can cause more harm than layoffs.

---

The more interest item, to me, is the keep working aspects.  Way too much room to game, but probably the best the politicians could pass given their desire to look good during an election year.

The pre tax school fee and student loan reimbursement should not to be overlooked.  The language allows for the employer to pay direct or to the employee, so on its face, appears to be something which would be reimbursed at end of year.  This could even make it into the extender group or made permanent.  Parent Plus is included (good for me!).  If structured to only reimburse for principal, the employee can still include the interest, if needed, for preparing their own return.  Oddly, the "news" touted a dollar limit.  The bill text I saw last night had no dollar limit.  Waiting for the actual law text...

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What I am curious to see/find is how WC calculations are affected.  WC wages currently include PTO.

If some sort of exception is not in place or created (the emergency PTO excluded from "wages" for WC purposes, or the PTO is not really PTO) then this is something many business will have to consider, those with high WC rates.

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I think I saw something about such calculations being suspended, but you're in a better position than I am to receive such notifications. I did get a message from a client today needing Feb 19-Jan income, payroll, and utilities; his BoA bank rep called him to apply for a "grant." 

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1 hour ago, cbslee said:

I believe what is included in wages for WC purposes is on a state by state basis.

Maybe, I have not researched it recently, but then again, I don't exclude it from WC wages in any state in my software (it is broken out though).  For the high WC codes, say over $10 per 100 (10%), this could be a real unexpected bite for some employers.

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Deep diving into this.  DOL is using "intent of Congress" to smooth over some of the bumpy parts in the law text.  My eyes are blurry... so I may be slightly off on some of the things not directly affecting me!

Hopeful the good faith provision prevents anal type auditing.  For instance, calculating the pay rate allowed for reimbursement accurately can be a chore, and I suspect many will pay based on the current pay rate, which could be more than allowed for reimbursement.

I don't have the cite handy, but I saw something where the intent rule is allowing employers not to restrict the credit to their SS match amounts, they can retain FWH if needed to "cover" the emergency leave.

I have seen at least one state which affirms sick leave, even this emergency leave, is subject to WC premiums.  States tend to use the same remuneration rules for WC, or I have not yet seen a state have something drastically different from the others.

The reimbursement must be added to business gross income to avoid the dreaded double dip.

Employers do not have to allow start and stop.  They can restrict it to once started, it cannot be restarted .

Plenty who grasped this incorrectly.  This is not retroactive.  Did not start until Apr 1, 2020, so there are likely few, if any, who need to pay it out or file a 7200 before at least Monday.  I have several customers who closed before Apr 1, but think they have to pay this because the employee's school is also closed.  One has a part time employee who is still working, but is asking for the free leave extra money because their child's school is closed.

The DOL is likely the best current official one stop source.  Their Q&A is lengthy, but every employer should read it.

https://www.dol.gov/agencies/whd/pandemic

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WA State has employer and employee pay WC (they call it L & I) only on actual hours worked, so emergency sick pay will not affect their L&I calculations.  I should have remembered.  WA is a growing outlier, as their state PTO does not believe tips are wages (they copied their UI definition of wages) so tipped employees get the dirty end of the stick.

Call me mush brain for the next week or two :)

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