CORONAVIRUS PAID SICK LEAVE FOR WORKERS AND TAX CREDITS FOR SMALL AND MIDSIZE BUSINESSES
Boston, Massachusetts, April 29, 2020 – Small and midsize businesses, to swiftly recover from the cost of providing Coronavirus paid sick leave, can begin taking advantage of two new refundable payroll tax credits, design fully reimburse them, dollars-for-dollars, for the cost of providing Coronavirus-related leave to their employees. This relief to employees and small and midsize businesses is provided under the, Families First Coronavirus Response Act.
The Act will help businesses with fewer than 500 employees funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members. Employees 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.
Employers receive 100% reimbursement for paid leave pursuant to the ACT
° Health insurance costs are also included in the credit.
° Employers face no payroll tax liability.
° Self-employed individuals receive an equivalent credit.
Reimbursement will be quick and easy to obtain:
ᵒAn immediate dollars-for-dollars tax offset against payroll taxes will be
ᵒWhere a refund is owed, the IRS will send the refund as quickly as
ᵒRequirements subject to 30-day non-enforcement period for good faith
To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.
Prompt Payment for the Cost of Providing Leave:
When employers pay their employees, they are required to withhold from their employees’ paychecks federal income taxes and employees’ share of Social Security and Medicare taxes. The employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns (form941 series) with the IRS.
Eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.
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(credit on 941) 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 taxes as a credit on his 941, as a qualified leave payments and file a request for an accelerated credit for the remaining $2,000.
Self-employed individuals- under similar circumstances qualify for the sick leave and child care leave credit amount. These credit will be claimed on their income tax return and will reduce estimated tax payment.
IR-2020-57, March 20, 2020
Robert E. Newton – Tax Consultant