Businesses with 500 employees or less are feeling the financial impact of the new federal laws that require them to provide financial relief to their employees during the COVID-19 pandemic. Assistance is now in sight as the federal government is providing small and medium sized businesses with tax relief to enable small businesses to comply with the new laws.
On March 20, 2020, the Internal Revenue Service (IRS) released regulation IR-2020-57, which provides relief for employers who are subject to the Families First Coronavirus Response Act (FFCRA), the new law requiring paid sick leave and expanded paid child care leave for workers for COVID-19 related reasons. The FFCRA allows employees to 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. The IRS is providing complete coverage for the costs of this law to employers, and employers are to receive 100% reimbursement for paid leave pursuant to the FFCRA. The IRS is also easing compliance requirements for employers, who will be provided with a 30 day non-enforcement period for good faith compliance efforts.
The logistics of IR-2020-57 have been formulated to make it easy for businesses to receive monetary credit for complying with the FFCRA. Eligible employers who pay qualifying sick or child care leave will be able to retain an amount of their payroll taxes equal to the amount of qualifying sick and child care leave that they paid pursuant to the FFCRA, rather than pay those monies as taxes to the IRS, as would normally be required. Employers may retain withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes. Employers should note that they may retain these taxes from all employees, not just those utilizing paid sick leave and expanded family leave, in order that they may cover costs incurred for those of their employees who have utilized paid sick leave and expanded family leave.
If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers may file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less.
The IRS provided the following two examples in IR-2020-57:
- 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.
In addition to the above relief, IR-2020-58 has extended the federal income tax deadline to July 15, 2020.
TAKEAWAY: Employers should claim tax credits for reimbursement of its FFCRA paid sick leave and childcare leave costs.
This blog post is for informational purposes only and not intended to provide individual tax advice. Please consult with an accountant before proceeding with any distribution to employees.
The postings on this blog were created for general informational purposes only and do not constitute legal advice or a solicitation to provide legal services. Although we attempt to ensure that the postings are complete, accurate, and up to date, we assume no responsibility for their completeness, accuracy, or timeliness. The information in this blog is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this information without seeking professional legal counsel.
This blog may contain links to independent third party websites and services, including social media. We provide these links for your convenience, and you access them at your own risk. We have no control over and do not monitor the content or policies (including privacy policies) of these third-party websites and have no responsibility for, and no liability with respect to, their content, accuracy, or reliability. Unless expressly stated, we do not endorse any of the linked websites or any product, service, or publication referenced herein or therein. We will remove a link to any site from this blog upon request of the linked entity.
We grant permission to readers to link to this blog so long as this blog is not misrepresented. This site is not sponsored or associated with any other site unless so identified.
If you wish for Wilentz, Goldman & Spitzer, P.A., to consider representing you, please obtain contact information from the Contact Us area of this blog or go to the firm’s website at www.wilentz.com. One of our lawyers will be happy to discuss the possibility of representation with you. However, the authors of Wilentz blogs are licensed only in New Jersey and/or New York and do not wish to represent anyone who viewed this site in a state where the site fails to comply with all laws and ethical rules of that state.