July 1, 2020

How the COVID-19 Payroll Tax Credits Work

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On March 20, 2020 the US Treasury, IRS and US Dept of Labor announced a plan to help small to medium sized business owners get through and recover from Coronavirus related business challenges. This has been done through the implantation of under the Families First Coronavirus Response Act, which was signed into law by President Trump on March 18, 2020.

What is the COVID-19 Paid Sick Leave Program

If employees have any COVID-19 related issues, employees may receive up to 80 hours paid sick leave and expanded care leave when employees’ children’s schools are closed or childcare providers are unavailable. This pay being provided for COVID-19 reasons, as defined by the US Dept of Health and Human Services, is paid out at 100% the employees normal pay if the need for self-quarantine or seeking medical treatment is necessary. If an employees is unable to work due to a need to care for a child who school or day care is closed for COVID-19 reasons, the employee may receive 2/3 of their normal pay for up to 80 hours. If needed, an employee may receive an additional 10 weeks of expanded paid family and medical leave at 2/3 the employees pay, however you might want to encourage the employee to check programs available at the state level for extended periods.

Who Pays for the COVID-19 Paid Sick Leave Program?

Employers will receive 100% reimbursement for paid leave pursuant to the Act. Also included in this reimbursement are any health care related costs. Employers will face no payroll tax liability on the paid leave and self-employed individuals will also receive an equivalent credit. The credit is paid out at 100% of the employees rate of pay, up to $511 per day and $5,110 for the total of the 80 hours. For employees caring for someone with Coronavirus or caring for a child because their school or day care facility was closed, may claim credit for 2/3 the employees pay up to $200 a day, $2000 for up to 80 hours. In addition to the paid sick leave credit, an employer may be able to offer an employee who’s childcare facility or whose child’s school closed for COVID-19 related reasons for an additional 10 weeks at 2/3 their normal pay through the child care leave credit. Like the paid sick leave credit this credit is capped at $200 per day or $10,000 total over the 10-week period. Also, eligible employers may receive an additional tax credit to maintain the health coverage for the employee during this period.

So Where Does the Credit Come From?

Well when you run your payroll you usually must pay employer mandated payroll taxes which is the employer’s portion of social security and Medicare, which sometimes can be thousands of dollars per pay period. These are the primary funds which are being immediately credited back as reimbursement for paid sick leave related reimbursements. If the payroll tax credit exceeds the calculated amount of payroll taxes for your payroll period, then the IRS will provide you an additional credit in the form of a cash refund.

Cash Flow is Extremely Tight Right Now, How Fast Does This Reimbursement Happen?

Under this program the reimbursement period was designed to provide fast funds to employers and reimbursements should be quick and easy to obtain. An immediate dollar-for-dollar tax offset against employer based payroll taxes will be provided. You should be able to take advantage of this credit through your payroll processing company, as many are already setup to handle this credit. In the instances when a refund is owed to the employer, the IRS will act is diligently as possible to get you your funds as quickly as possible, but expect to receive it in 14 days or less.

Is Anyone Exempt From the Paid Sick Leave Program?

Yes. Businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements only relating to school closings or child care unavailability, and only when the requirements would create harm in the business to continue operations.

What is the Non-Enforcement Period?

The non-enforcement period is a period in which the employer has to come into compliance with this Act. Under this policy, the Labor dept will not bring any enforcement against any employer for violations of the Act as long as the employer has acted in good faith to comply with the Act and will spend efforts over the 30-day period focusing on compliance assistance to employers. Plan to have a policy into effect for your employees no later than April 20, 2020.

Further Details: IRS Coronavirus Payroll Tax Credit Info

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