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There were a few important alerts announced this month that change federal compliance for human resource management that may affect your company. We...
You’ve probably weathered many changes to your company and staffing recently. And that includes staying compliant with new legislation that requires expanded paid leave. There’s a lot of detail to keep track of, but the good news is many employers are eligible for some relief in the form of tax credits. Here’s what you need to know.
FFCRA paid leave requirements
The Families First Corona Virus Response Act (FFCRA) was passed March 18, 2020 and is effective April 1 to December 31, 2020. Among other provisions, it includes a requirement that employees be given expanded access to paid sick and FMLA leave (in certain circumstances).
Key FFCRA provisions:
Paid leave may be taken for qualifying emergency time off under these circumstances:
Small businesses, defined as those with fewer than 50 employees, may be eligible for an exemption to one of the paid leave requirements. National Law Review explains the exemption only applies to the obligation to provide paid leave due to school or childcare closures. A business must determine that providing leave to care for a child would jeopardize the viability of the business for one of the three following reasons:
Tax credits under FFCRA and the CARES Act
FFCRA payroll tax credits
The FFCRA also establishes payroll tax credits to offset the new paid leave requirements. Employers may claim the credit for:
Note that paid leave wages are not subject to Social Security taxes, so these may not be claimed.
To qualify for the FFCRA tax credit, employers must:
Social Security tax deferral
Under the Coronavirus Aid, Relief, and. Economic Security Act (CARES), employers may defer the employer portion of Social Security taxes between March 27 and December 21, 2020. The stipulations are that at least 50 percent of the deferred taxes must be paid by the end of 2021, and the remainder paid by the end of 2022.
Employers who take out a Paycheck Protection Program (PPP) loan that will be forgiven are ineligible to defer Social Security taxes, however, “on April 10, the IRS issued guidance clarifying that an employer may defer the employer’s portion of Social Security taxes until it actually receives a decision from its lender that its PPP loan has been forgiven,” according to the Akerman.com legal website.
Employee retention tax credit
Some employers may claim “employee retention” payroll tax credits created by the CARES Act. This refundable tax credit is taken against certain employment taxes equal to 50 percent of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. Eligible employers can get immediate access to the credit by reducing employment tax deposits they are otherwise required to make. Employers are eligible if:
Further, employers must have averaged more than 100 FTE in 2019. The credit covers qualified wages and certain health care costs up to $10,000.00 for each employee who is not working due to one of the above reasons.
Note also that wages for this credit do not include wages for which the employer received a tax credit for paid sick and family leave under the FFCRA.
Tax credit advances
To address cash flow concerns related to expanded paid leave, the CARES Act allows employers to apply for an advance on the tax credits with IRS Form 7200. IRS also notes, “In anticipation of claiming the credit, employers can retain a corresponding amount of the employment taxes that otherwise would have been deposited, including federal income tax withholding, the employees' share of Social Security and Medicare taxes, and the employer's share of Social Security and Medicare taxes for all employees, up to the amount of the credit, without penalty, taking into account any reduction for deposits in anticipation of the paid sick and family leave credit provided in the Families First Coronavirus Response Act.”
PPP loan notes
While not a tax credit, the Paycheck Protection Program (PPP) was also created by the CARES Act. This program, administered by the Small Business Administration, provides loans to small businesses with the goal of keeping employees on payroll. PPP loans can be forgiven if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.
It’s important to understand that if you have a PPP loan you may not also claim employee retention tax credits.
There’s so much to keep track of at a time like this, so remember Horizon is here to keep you informed. Please contact us with any questions – stay safe!
Disclaimer: This article is provided for informational purposes only and is not intended as tax or legal advice. Please consult your tax preparer or qualified legal counsel with specific questions.