Client Alerts Tax Credit for Small and Mid-Size Businesses Providing Coronavirus-Related Paid Leave

Publication
03.23.20 | By: Frank L. Washelesky

In our previous Client Alert, What you need to know about the Families First Coronavirus Response Act, we provided a general overview of the recent Act.  The Act mandated businesses with fewer than 500 employees provide their employees paid sick leave and expanded family and medical leave for COVID-19 related reasons and created two new refundable payroll tax credits to reimburse the employer for the cost of providing this leave. 

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In our previous Client Alert, What You Need to Know About the Families First Coronavirus Response Act, we provided a general overview of the recent Act. The Act mandated businesses with fewer than 500 employees provide their employees paid sick leave and expanded family and medical leave for COVID-19 related reasons and created two new refundable payroll tax credits to reimburse the employer for the cost of providing this leave. IR 2020-57, issued on March 20, 2020, provides some additional guidance on the payroll tax credits.

When employers pay employees, they are required to withhold federal income taxes and the employee’s share of Medicare and Social Security taxes from their paychecks. The employer must then deposit these taxes plus the employer portion of Medicare and Social Security taxes with the IRS and file quarterly payroll tax returns.

Under guidance expected to be released in the coming week, eligible employers will be able to retain an amount of these payroll taxes equal to the amount of qualifying leave that they paid. If there are not sufficient payroll taxes to cover the qualifying leave paid, the employer can file a request for accelerated payment with the IRS. The IRS expects to process these requests in two weeks or less. Details on this procedure are also expected in the next week.

IR 2020-57 provides two 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.

Eligible employers will be able to claim these credits based on qualifying leave they provide between the effective date, no later than 15 days after enacted (April 2, 2020) and December 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances.

There remain many unanswered questions and additional guidance is expected. We will keep you posted as new developments occur. In the meantime, we will continue to work remotely to assist our clients during these difficult times. 

If you have questions or concerns regarding this Client Alert, please contact Frank Washelesky at fwashelesky@orba.com or your ORBA advisor.

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