March 22, 2020
There is much uncertainty and many changes in our world these days. New legislation was passed this week to extend the April 15 deadline to file individual returns until July 15 and the Families First Coronavirus Response Act signed into law by President Trump on March 18, 2020. The deadline to pay tax due was extended earlier until July 15, 2020. No extension required, so if your return has not been filed everything needed is done. ABS will work as if the deadline were still April 15 as much as possible to provided completed returns to our clients as soon as possible. Beginning Monday, March 23 we will work remotely, the office will have limited staffing and we will not meet with clients. We can be reached at our regular phones and will be available as usual electronically.
The required paid leave provisions in the Families First Coronavirus Response Act will be costly to employers and require additional resources to administer. These credits are quite complex and bring up many questions from employers that will need to be addressed. At this point, the Treasury Department will select a beginning date, which could be any time in the next 15 days.
Here is an overview of the Family First Coronavirus Response Act (THE ACT. There are many programs and funding in response to the COVID-19 emergency. Most are not relative to businesses, but there are employment related sections. The Act focuses on two types of mandatory paid leave for employees and on tax credit to help employers pay for the mandatory paid leave.
There are different paid leave types and amounts based on the reasons that the employees are unable to work, if the need for the leave arises out of the COVID-19 emergency. The mandatory paid leave amount varies based on the type of paid leave taken and based on the reason the employee is unable to work. Employers may have to make the determination of the amount and duration of mandatory paid sick leave based on an individual employee’s facts.
Under the Act, employers will receive tax credits against FICA based on the amounts of mandatory sick leave paid and based on certain qualified healthy plan expenses the employer incurs with regard to the employees taking the mandatory paid leave. Self-employed individuals who are unable to work because of the COVID-19 emergency will also receive credits against section 1402 Self Employment contributions Act (SECA) contributions. If a self- employed individual is also an employee of another employer, the individual cannot double dip.
MANDATORY LEAVE TYPES
Public Health emergency leave/Family leave
Under amendments to the Family and Medical Leave Act (FMLA), if an employee takes time off (and is unable to work or telework) to care for a son or daughter under the age 18 because the school or place of case has been closed due to the COVID-19 public health emergency, the employer must allow the employee to take time off. This time off is unpaid job-protected leave for the first two weeks. During this two-week period, the employee can take other types of paid time off that may be available from the employer or may be covered under the emergency paid sick leave described below. However, after the first 10 workdays, the employer must provide mandatory paid leave for each day of leave. The paid leave amount is no less than two-thirds of the employee’s regular rate of pay based on the employee’s normal work schedule, but is capped at $200/day and $10,00/employee. As a general rule, the employee’s job must remain protected while the employee is on leave unless a special exception applies.
Emergency paid sick leave
An employer must provide up to 80 hours of emergency paid sick leave for each day a full-time employee cannot work or telework based on one of the six criteria below. Part-time employees get sick leave based on their hours during a normal two-week schedule.
1-Employee is subject to federal, state or local quarantine restrictions
2-Employee has been advised by a health care provider to self-quarantine due to COVID-19 concerns
3-Employee has COVID-19 symptoms and is seeking a medical diagnosis
4-Employee is caring for someone under quarantine or self-quarantine as described above.
5-Employee is caring for a son or daughter if the school or day care provider has been closed due to COVID-19 precautions.
6-Other similar conditions if posted by the Dept of Health and Human Services (HHS)
If the individual is unable to work or telework because of criteria 1-3 above, the amount of paid sick leave is 100% of regular compensation up to a max or $511/day. For #4-6, the amount of paid sick leave is 2/3 of regular pay with a max or $200/day.
The mandatory paid leave rules generally apply to employers with less than 500 employees, but employers with less than 50 employees may be exempt by the Department of Labor if the requirements would jeopardize the business ability to survive. An eligible employee has worked for the employer at least 30 days. Employers must notify employees of these leave options and employees must be allowed to use these leave options before taking any regular paid time off. These leave options expire 12-31-20.
Employer tax credits
The Act includes four new tax credits to help employers with the cost of these requirements. They are outlined in sections 7001-7004 of the Act. Wages required to be paid because of emergency paid family leave are not considered wages for FICA purposes but are considered wages for Medicare tax purposes. The payroll credits (but not the self-employment credits) are increased by the amount of Medicare tax imposed on the employer.
Payroll credit for required paid sick leave
Employers can take tax credits for the amount of qualified sick leave wages actually paid in a quarter up to $200/employer per day or $511/employee per day for the quarantine reasons listed. The aggregate number of days of sick leave taken into account is limited to the aggregate number of days taken into account for all preceding quarters minus 10 days. The credit cannot be greater than the payroll taxes for that quarters and applies only to wages paid for the period beginning on a date to be announced and December 31, 2020. An employer can increase the tax credit for certain qualified health plan expenses incurred by the employer to provide employee group health plan coverage while employees are on this paid leave. More rules apply. Please contact us if this applies and we will discuss further. To avoid a double benefit, the employer’s gross income must be increased by the amount of the tax credit.
Credit for sick leave for certain self-employed individuals
A credit similar to the payroll credit for required paid sick leave is available for self-employed individuals. The credit is taken against self-employment tax and is calculated similarly but not exactly the same.
Payroll credit for required paid family leave
Like the required paid sick leave credit, an employer can take a tax credit against payroll amounts for each calendar quarter for required family leave payments. The credit is limited to $200/day/employee covered with an aggregate credit limit of $10,000/employee. Employers can take a credit for the qualified group health plan expenses with regard to the employees taking paid family leave.
Credit for family leave for certain self-employed individuals
A credit similar to the payroll credit for required paid family leave is available for self-employed individuals. The credit calculation is similar but not exactly the same.
Special rules related to tax on employers
Wages required to be paid because of emergency paid family leave are not considered wages for FICA purposes but are wages for Medicare purposes. The payroll credits but not self-employment credits are increased by the amount of Medicare tax imposed on the employer.
Please know that we are available to help you navigate this new law and its effects on your business in the coming days, weeks and months.
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