Federal Payroll Tax – Credits Available and Delaying Payments
Employers may take credits against their Federal Payroll Tax to help during this time.
For employers required to provide Sick Leave or Family Medical Leave, the full amount may be fully deductible.
For employers that elect to retain their employees, whether working or not, eligible wages are deductible up to certain caps.
Employers may also defer their 2020 Employment taxes over 2021 and 2022?
The Families First Coronavirus Relief Act (FFCRA) requires employers to offer Sick Leave to employees directly affected by COVID-19 and Family/Medical Leave to employees with family members who are directly affected by COVID-19 from 04/01/20 through 12/31/20. Employees employed for at least 30 days are eligible for coverage. The cost of this leave is reimbursed by the Federal Government via credits taken against an employer’s regular pay tax deposits.
Employee Sick Leave
• An employee qualifies for Sick Leave if they are (1) subject to a Federal, State or local quarantine or isolation order related to COVID-19, (2) has been advised by a health care provider to self-quarantine related to COVID-19 or (3) is experiencing COVID-19 symptoms and is seeking a medical diagnosis.
• Full-time employees are eligible for up to 80 hours of Sick Leave. Part-time employees are eligible for up to the number of hours normally worked over the average of two weeks. Employees are to receive the lesser of their regular pay or $511 a day for a maximum of $5,110.
• Employers are not required to pay Sick Leave if no work was available.
Employee Family/Medical Leave
• An employee qualifies for Family/Medical Leave if they are caring for someone who is (1) subject to a Federal, State or local quarantine or isolation order related to COVID-19, (2) has been advised by a health care provider to self-quarantine related to COVID-19.
• Full-time employees are eligible for up to 80 hours of Family/Medical Leave. Part-time employees are eligible for up to the number of hours normally worked over the average of two weeks. Employees are to receive the lesser of 2/3 their regular pay or $200 a day for a maximum of $2,000.
• Employees are eligible for an additional 10 weeks of Family/Medical Leave if the school or daycare a child attends is closed due to COVID-19. Employees are to receive the lesser of 2/3 their regular pay or $200 a day. This 12 week total to care for a child leads to a maximum Leave amount of $12,000.
Employer Credits for FFCRA
• An affected employer is entitled to deduct the full amounts paid for Sick and Family/Medical Leave from their semi-monthly, monthly, or quarterly Form 941 payroll tax deposits.
• Employers may also deduct the pro-rated health insurance costs associated with affected employees. Health insurance costs of >2% Shareholders are excluded.
• If the total of Paid Leave tax credits exceeds an employer’s 941 payroll tax deposit, the employer should file Form 7200 to request reimbursement for the balance.
Employers already in operation in 2020 before the crisis that continue to retain their employees during this time might be eligible for an Employee Retention Credit.
To qualify for this credit, one of two things must occur. Either:
1. The employer is required to partially or completely suspend its operations under an order of a federal or local government, OR
2. Gross Receipts for a single quarter in 2020 were less than 50% of the receipts for the same quarter in the previous year. In this situation, every succeeding quarter in 2020 will count until receipts have returned to at least 80% of the receipts in the same quarter of the previous year. Wages must have been paid at some point during the affected quarter.