by Mike Godfrey, Washington

15 May 2020

On May 7, 2020, the United States Internal Revenue Service issued a reminder to employers affected by COVID-19 about the tax credits made available to them under the Coronavirus Aid, Relief, and Economic Security Act.

These relief measures include:

The employee retention credit

The employee retention credit is designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50 percent of up to USD10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.

The credit is available to all employers regardless of size, including tax-exempt organizations. There are only two exceptions: state and local governments and their instrumentalities and small businesses who take small business loans.

Qualifying employers must fall into one of two categories:

  • The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
  • The employer’s gross receipts are 50 percent below those of the comparable quarter in 2019.

Once the employer’s gross receipts are 80 percent of those in a comparable quarter in 2019 they no longer qualify after the end of that quarter.

Paid sick leave credit

The paid sick leave credit is designed to allow businesses to get a credit for an employee who is unable to work (including telework) because of COVID-19 quarantine or self-quarantine or because they have COVID-19 symptoms and are seeking a medical diagnosis. Those employees are entitled to paid sick leave for up to 10 days (up to 80 hours) at the employee’s regular rate of pay, capped at USD511 per day and USD5,110 in total.

The employer can also receive the credit for employees who are unable to work due to caring for someone with COVID-19 or caring for a child because the child’s school or place of care is closed, or the paid childcare provider is unavailable due to COVID-19. Those employees are entitled to paid sick leave for up to two weeks (up to 80 hours) at two-thirds the employee’s regular rate of pay, or up to USD200 per day and USD2,000 in total.

Employees are also entitled to paid family and medical leave equal to two-thirds of the employee’s regular pay, up to USD200 per day and USD10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the family leave credit.

Employers can be reimbursed immediately for the credit by reducing their required deposits of payroll taxes that are withheld from employees’ wages.

Eligible employers are entitled to receive a credit in the full amount of the required sick leave and family leave immediately, plus related health plan expenses and the employer’s share of Medicare tax on the leave, for the period of April 1, 2020, through December 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees.

Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS. Eligible employers can also request an advance of the Employee Retention Credit.

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