23 March 2020 IRS, Treasury and Labor announce plans for giving employers immediate recovery of COVID-19-related leave expenses As previously reported (EY Payroll Newsflash, Vol. 21, 077, March 19, 2020), the Families First Coronavirus Response Act (H.R. 6201; "the Act") provides certain tax relief for employers and employees as a result of the COVID-19 pandemic. The Act requires private sector employers with fewer than 500 workers and government entities to provide: (1) paid sick leave (two weeks for full-time employees and average hours over a two-week period for part-time employees) necessary to respond to COVID-19 issues; and (2) as many as 12 weeks of job-protected leave to employees to care for a child whose school or place of care is closed. Employers will receive a refundable payroll tax credit for these additional required wages being paid to impacted employees. In IR-2020-57, the IRS provides an early framework of its plans to allow small and midsize employers to immediately take advantage of the two new refundable payroll tax credits, fully reimbursing them for the cost of providing COVID-19-related leave to their employees. Information regarding the process to receive an advance payment of the credit will be posted at Coronavirus Tax Relief on IRS.gov. The Act provides paid sick leave and expanded family and medical leave for COVID-19-related reasons and creates the refundable paid sick-leave credit and the paid childcare-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. 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 unab;le to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or childcare 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 two-thirds of 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 childcare provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional 10 weeks of expanded paid family and medical leave at two-thirds of the employee's pay. For an employee who is unable to work due to (1) being under coronavirus quarantine or self-quarantine or (2) having coronavirus symptoms and 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 caring for a child because the child's school or childcare facility is closed or the childcare 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. 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 childcare facility is closed or whose childcare provider is unavailable due to the coronavirus, eligible employers may receive a refundable childcare-leave credit 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 toward the childcare-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. When employers pay their employees, they are required to withhold from their employees' wages federal income tax and the employee share of Social Security/Medicare (FICA). Employers then are required to deposit these federal withholding taxes with the IRS, along with the employer share of FICA, and to report the wages and taxes on the federal employment tax return (Form 941 series). Under IRS guidance anticipated this week, eligible employers that pay qualifying sick or childcare leave will be able to reduce their federal payroll tax deposit by the amount of qualifying sick and childcare leave paid. The federal payroll taxes that employers may withhold for this purpose include federal income tax withholding, the employee share of FICA and the employer share of FICA for all employees. If there are insufficient federal payroll taxes to cover the cost of qualified sick and childcare 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 are expected to be announced this week. 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 to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000. Equivalent childcare-leave and sick-leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax returns and will reduce estimated tax payments. Small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or childcare unavailability where the requirements would jeopardize the ability of the business to continue. The exemption will be available in circumstances involving jeopardy to the viability of an employer's business as a going concern. The U.S. Department of Labor (DOL) will provide emergency guidance and rulemaking to articulate this standard. DOL 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, DOL 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. DOL will instead focus on compliance assistance during this time period.
Document ID: 2020-0648 | |||||||||
