The IRS has urged qualifying employers to utilize the tax credits they are entitled to for covering the costs associated with providing paid sick leave, paid family and medical leave to employees unable to work because of the coronavirus (COVID-19). These credits are refundable; if the amount of the credit exceeds the amount of tax owed, the remainder is refunded to the business or organization. These credits, provided under the Families First Coronavirus Response Act (P.L. 116-127), are available to eligible employers beginning April 1, 2020, for qualifying leave they provide between April 1, 2020, and December 31, 2020.
Eligible EmployersEligible employers comprise of businesses and tax-exempt organizations with fewer than 500 full-time and part-time employees within the United States or any U.S. territory or possession and that have to meet certain employer paid leave requirements.
Paid Sick Leave Requirement and CreditEmployees of eligible employers who are unable to work or telework because they are quarantined or experiencing COVID-19 symptoms and seeking a medical diagnosis can receive up to 80 hours of paid sick leave. This pay is at their regular rate of pay or, if higher, the applicable minimum wage, up to $511 per day and $5,110 in total. The eligible employer is entitled to a fully refundable tax credit equal to the required paid sick leave wages. Eligible employers can also get an additional credit for the employer’s share of Medicare tax imposed on the qualified sick leave wages and the cost of maintaining health insurance coverage for the employee during the sick leave period. The employer is not subject to the employer portion of Social Security tax on those wages.
Paid Family and Medical Leave Requirement and CreditIn addition to the paid sick leave credit, an employee who is unable to work or telework because of a need to care for a child whose school or place of care is closed or whose child-care provider is unavailable due to COVID-19, is entitled to paid family and medical leave equal to 2/3 of the employee’s regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted toward the paid family leave credit. An employee qualifies for paid family and medical leave if they have been on an employer’s payroll for 30 calendar days or more.
The eligible employer is entitled to a fully refundable tax credit equal to the required paid family leave wages. Eligible employers can also get an additional credit for the employer’s share of Medicare tax imposed on those wages and its cost of maintaining health insurance coverage for the employee during the family leave period. The eligible employer isn’t subject to the employer portion of Social Security tax on those wages.
Procedure for Claiming CreditsEligible employers report their total qualified leave wages and the related credits for each quarter on their federal employment tax return, usually Form 941, Employer’s Quarterly Federal Tax Return. They can receive the benefit of the credits by reducing their federal employment tax deposits for that quarter by the amount of the qualified leave wages, allocable qualified health plan expenses, and the employer’s share of Medicare tax on the wages. They will account for the reduction in deposits due to the leave credits on the Form 941 they file at the end of the quarter. If employers don’t have enough federal employment taxes to cover the amount of the credits, after they have deferred deposits of employer Social Security taxes, they may request an advance payment of the credits from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19. They may fax their completed forms to 855-248-0552.
Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense. The firm was founded in 2014 by Joseph P. Wilson, a former Federal tax prosecutor, trial attorney for the IRS and trial attorney for the Franchise Tax Board.
For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC
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