Part I: COVID-19 Small Business Series
Congress and the Trump Administration have reached agreement on various plans and processes to pass billions of dollars in economic relief for small businesses affected by COVID-19, commonly known as the “coronavirus.” Business owners, large and small, have shown a willingness, even an eagerness, to “do their part” to stem the tide of the virus and help America recover from this crisis. That said, it is absolutely fair for business owners to ask “…but what’s in it for me? I want to take care of my employees and customers, but how does my business recover and stay open?” In the hopes of addressing some of these concerns, this is the first installment in a series of pieces discussing actions taken by Congress, the current administration, and various federal agencies to assist with the business consequences and other fallout arising from the pandemic.
On March 20, 2020, the U.S. Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of Labor (DOL) 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 (IR-2020-57, March 20, 2020)(the “Announcement”). 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 was designed to assist in the battle with COVID-19 by giving all American businesses with fewer than 500 employees the funds necessary to provide employees with paid leave, either for the employee’s own health needs or to care for family members. The legislation was also designed to enable employers to keep workers on their payrolls while also ensuring that workers are not forced to choose between their paychecks and other public health measures that might be needed to combat the virus.
Summary of the Act
- 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.
According to the Announcement, in order 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 sometime this week.
The Act requires certain employers to provide their employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19, and the DOL Wage and Hour Division administers and enforces the new law’s paid leave requirements. For example, the Act amends the Family and Medical Leave Act of 1993 (the “FMLA”) to provide up to twelve (12) weeks of job protected leave – 10 of which are paid, subject to a cap – to employees who have a ‘‘qualifying need related to a public health emergency.” This new type of leave can be used by an employee who is unable to work (or telework) due to a need for leave to care the employee’s son or daughter under 18 years of age if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable, due to a public health emergency. In an attempt to alleviate the burden of these requirements, the Act also created the “refundable paid sick leave credit” and the “paid child care leave credit” for “eligible employers.” For purposes of the Act, “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 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 ten (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 (the Form 941 series) with the IRS.
Under guidance that will be released sometime this 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 announced that it expects to process these requests in two weeks or less, and the details of this new, expedited procedure are also expected to be announced sometime this week.
Helpful Examples Provided in the Announcement
- 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 fifty (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 Announcement provides that “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.” DOL is charged with providing emergency guidance and rulemaking to clearly articulate this standard.
DOL will also 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 the 30-day period.
For more information about these credits and other relief, please visit Coronavirus Tax Relief on IRS.gov. Information regarding the process to receive an advance payment of the credit is expected to be posted sometime this week.
This post has been prepared by Robinson Gray Stepp & Laffitte, LLC for informational purposes only and does not constitute legal advice. For more information, contact attorney Tim Thompson.
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