More Coronavirus-Related Tax Relief: Q and A

As the COVID-19 pandemic continues, so, too, do the actions of Congress to help on the economic front.

The previous blog covered IRS relief actions. This blog focuses on relief from Congress.

The Families First Coronavirus Response Act (H.R. 6021) was signed into law on March 18, 2020. It creates two types of paid leave for certain employees, an employer tax credit, and some relief for self-employed individuals.

The measures discussed here are only for small businesses (those with fewer than 500 employees). The measures do not apply to larger employers.

Q: Who’s impacted?

Small businesses and self-employed individuals face new tax rules that are aimed at achieving some financial relief for all concerned. Employers with fewer than 500 employees must provide the benefits explained later for a period starting April 2 (this date may be adjusted) through December 31, 2020. Employers with fewer than 50 employees may be exempted from the family leave requirement if compliance would threaten the viability of the business.

Q: What can employees expect?

Those who work for small businesses—full-time or part-time—and who are “eligible employees” will receive paid sick and paid family leave benefits. An eligible employee is one experiencing any of the following 6 conditions:

1. Being subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
2. Having been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
3. Experiencing symptoms of COVID-19 and seeking a medical diagnosis;
4. Caring for an individual who is subject to an order described in (1) or has been advised as described in (2);
5. Caring for the employee’s son or daughter if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable due to COVID-19 precautions; or
6. Experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

An eligible employee with any of the first 3 conditions is entitled to paid sick leave equal to 100% of regular pay up to a maximum of $511 per day. This means anyone earning up to $133,000 a year gets a full pay replacement. Paid sick leave is up to 10 days (which amounts to 2 weeks of work). The maximum benefit per employee is $5,110. This paid sick leave is not taxable. Any unused amount does not carry over to 2021.

An eligible employee with any of the last 3 conditions is entitled to paid family leave equal to two-thirds of regular pay up to a maximum $200 per day (for a 5-day workweek). This means anyone earning up to $78,000 receives the two-thirds pay replacement. The maximum benefit per employee is $10,000. The Family and Medical Leave Act allows for 12 weeks of leave time. Under the new law, the paid benefit runs for up to 10 weeks (but first two weeks may be unpaid). Employees may opt to use their accrued leave time for these first two weeks if available.

Employees need to retain documentation to support their eligibility. What it must be is not yet known.

Note: Your state may have additional paid leave requirements. For example, New York enacted a measure to provide sick leave and job protection resulting from the corona quarantine (employers with 10 or fewer employees and a net income of less than $1 million are only required to provide unpaid, but job-protected, sick leave).

Q: What can employers expect?

Be sure to adjust your payroll practices for the new leave payments. Businesses that use outside payroll companies should check to be sure you’re coordinating with them so they can make these payments to eligible employees when required.

An employer can claim a tax credit against the employer’s Social Security tax (a portion of the employer’s share of FICA). The credit is 100% of all the benefits paid. Any excess credit can be refunded, although various limitations apply.

An employer who claims the paid family and medical leave credit against income tax cannot use this new credit against Social Security tax. An employer can obtain the credit by NOT depositing what is ordinarily due that’s equal to the leave payments being made. If this doesn’t cover the leave payments, the employer can request an accelerated credit.

The IRS gives these 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.

Q: What benefits are available to self-employed individuals?

Because self-employed individuals aren’t employees, they can’t get sick leave or family leave. But if they carry on a trade or business and are unable to perform their duties (see the 6 conditions listed earlier), the new law provides them with a refundable tax credit (an offset to their income tax) for “qualified sick leave wage equivalent amounts” and a refundable tax credit for “qualified family leave wage equivalent amounts.” Various limitations apply. And they’re going to need certain documentation (as yet to be defined).

Q: What is the SBA lending program for businesses impacted by the pandemic?

This and other governmental programs related to the pandemic impacting small business will be covered in the next blog.

Final thought

Intuit QuickBooks has set up a center to help you “prepare your business, communicate with customers, and support your employees during the coronavirus outbreak.” Here you’ll find links to numerous resources—government and Intuit—to find answers to other questions you may have.