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BenderCPA COVID-19 Information Page

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The information below includes releases issued by BenderCPA during the COVID-19 pandemic.  These posts include summaries of tax law changes and relief provisions granted by the IRS and state/local authorities that impact our clients.  While we try to be as detailed as possible, we ask that clients contact their BenderCPA advisor with any questions before taking action based on a post to ensure your intended outcome is achieved.

ALERT - Mandated Paid Sick & Family Leave & Offsetting Tax Credits

Posted by Admin Posted on Mar 23 2020

ALERT – FAMILIES FIRST CORONAVIRUS ACT TAX CHANGES

As promised in our last email, we’re providing an update to all clients on recent developments in the Federal and State government’s response to COVID-19. 

On March 18, 2020, Congress passed, and the President signed, the Families First Coronavirus Response Act (H.R.6201) into law.  Among the Act’s many provisions was a mandate for all employers with 500 or fewer employees to provide up to 80 hours of paid sick leave and up to 10 weeks of paid family leave to eligible employees.  The Federal government is providing Employers a 100% reimbursement of the mandated wages paid under the Act.  See the discussion below for additional specifics, including the maximum paid leave amounts under the mandate.

Payroll Client Action Item:  For all clients for whom we process payroll, effective immediately, we need you to separately include in your payroll information the hours / pay for employees who are subject to the mandatory sick and family paid leave per the Families First Coronavirus Response Act.  While we are providing the information in this email as a courtesy to our clients, we are not responsible or able to determine what amounts you pay that qualify for relief under the Act.  If you have questions about your specific situation, we recommend you contact your legal counsel.

The following paragraphs provide more detail about the changes summarized above.  We encourage everyone to review the details below to see how they may apply to you personally or to your business’ employees.  For your information, here are links to the full text of the Act as well as Congress’ technical explanation of the Act’s tax credits:  Full Text of Act   |    Technical Explanation

 

PAID SICK LEAVE

All employers with 500 or fewer employees are required to pay up to 2 weeks (80 hours) of paid leave for employees who are unable to work or telework as a result of one of the following reasons:

1.       The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19,

2.       The employee has been advised by a health care provider to self-quarantine,

3.       The employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis,

4.       The employee is caring for an individual listed in reason #1 or #2, above,

5.       The employee is caring for the employee’s son or daughter if the child’s school or childcare facility has closed or the childcare provider is unavailable, due to COVID-19 precautions, or

6.       The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.

Employees who miss work due to items #1, 2, or 3, above, must be paid 100% of their normal wages for hours normally scheduled to work, up to $511 per day.  Employees who miss work due to items #4, 5, or 6, above, must be paid at least 2/3rds of their normal wages for hours normally scheduled to work, up to $200 per day.  Employers are allowed to pay more, but not less, than these thresholds.

Employers cannot require an employee to find a replacement worker or to use other benefits (sick time, PTO, etc.) before the mandated sick leave under the Act.  Each employee is also only entitled to a cumulative total of 80 hours of paid sick leave between now and December 31, 2020.  After December 31, 2020, there is no mandate under current law to provide additional sick time to employees impacted by COVID-19.

Employer Credit – Employers who pay sick leave benefits outlined above will receive a credit for 100% of the wages paid (up to a per-day threshold) against their Form 941 payroll tax liability.  The amount of the credit depends on the circumstances under which the employee was paid:

1.       For employees who miss work due to items 1, 2, or 3, above, the credit is equal to 100% of the wages paid, up to a maximum of $511 per day for each affected employee ($5,110 total per employee).

2.       For employees who miss work due to items 4, 5, or 6, above, the credit is equal to 2/3 of the wages paid, up to a maximum of $200 per day for each affected employee ($2,000 total per employee).

The credit is also increased by employer-paid health insurance premiums for the period the employee is out of work, above.  For example, if an employee is out 2 weeks under quarantine for COVID-19, a pro‑rated portion of the health insurance premiums paid for by the company for that employee can be included as an additional credit on the Form 941.

Any credit amount that exceeds the 941 liability is fully refundable to the business.  The cash-flow benefit of this credit is available before filing the quarterly 941 by reducing the Form 941 tax deposits by the expected credit.  If the expected credit exceeds the current 941 liability, the business can request an expedited refund if their expected credit exceeds their current 941 liability.  Additional procedures for requesting the advanced refund will be released by the IRS next week.

 

PAID FAMILY LEAVE

In addition to 2 weeks of paid sick leave, the Act provides for up to 10 weeks of paid family leave for employees who are unable to work or telework because school or childcare is closed or unavailable for the employee’s son or daughter under age 18.  To qualify for this benefit, the employee must have been employed for at least 30 days prior to missing work.  The first 10 days of leave may be considered unpaid (because the employee would qualify for the Paid Sick Leave, above). 

After the first 10 days, the employee is eligible for Paid Family Leave of up to 2/3rds of their normal pay for their normally scheduled hours with a maximum of $200 per day for a period of 10 weeks ($10,000 per employee maximum). 

Employer Credit- Similar to the credit for Paid Sick Leave, employers who make Paid Family Leave payments will receive a credit for 100% of the wages paid (up to $200 per day) plus a pro-rated portion of employer-paid health insurance costs against their Form 941 payroll tax liability.  Expected credits can be withheld from normal 941 payroll deposits or refunded to the employer via an advanced refund request. 

 

SMALL BUSINESS EXEMPTION

The two paid leave mandates, above, are required for all organizations with 500 or fewer employees.  However, an employer with 50 or fewer employees is allowed an exemption if making the mandated leave payments would jeopardize the ability of the business to continue as a going concern.  The IRS has not released any guidance on how this determined, but if you feel your business may not survive making these payments, you are allowed an exemption.

 

ADDITIONAL GUIDANCE EXPECTED

Clearly, the new paid leave requirements are complex and are only two or three days old at this point.  We fully expect additional guidance to be released over the upcoming weeks as both employers and the IRS implement the new provisions in payroll.  We will work with our payroll clients to track qualified wages and will maximize the cash savings to businesses when scheduling payroll tax payments.  If you have any questions about the above or how you need to respond, feel free to give your BenderCPA advisor a call to discuss.


 
This information is provided as a convenience to our clients and is based on existing authorities as of each post.  Our advice could change as a result of changes in the applicable laws and regulations.  We are under no obligation to update posts if such changes occur.  Any information contained herein is general in nature.  You should contact your tax advisor to confirm how this information applies to your specific situation.  This advice is not intended or written to be used for the purpose of avoiding penalties that may be imposed.