Three important new credits are available to employers to help them cope with the negative financial effects of the COVID-19 pandemic.
The Employee Retention Credit
The employee retention credit is designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.
The credit is available to all employers regardless of size, including tax-exempt organizations. There are only two exceptions: State and local governments and their instrumentalities and small businesses that take out small business loans.
To qualify, an employer’s business may qualify in one of two ways. First, the business must be fully or partially suspended by government order due to COVID-19 during the calendar quarter. In the alternative, the employer’s gross receipts must be below 50% of the comparable quarter in 2019. Once the employer’s gross receipts rise above 80% of a comparable quarter in 2019, the business no longer qualifies at the end of this quarter. Employers will calculate these measures each calendar quarter.
The Paid Sick Leave Credit and Family Leave Credit:
The paid sick leave credit is intended to permit businesses to receive a credit for an employee who is unable to work, including work telephonically, because of COVID-19 quarantine or self-quarantine, or because the employee has Coronavirus symptoms and is seeking a medical diagnosis. These employees are entitled to paid sick leave for up to 10 days (up to 80 hours) at the employee’s regular rate of pay up to $511 per day and $5,110 in total.
Employers may also receive this credit for employees who are unable to work due to caring for someone afflicted with COVID-19 or caring for a child because the child’s school or place of care is closed, or the paid childcare provider is unavailable because of COVID-19. These employees are entitled to paid sick leave for up to two weeks (up to 80 hours) at 2/3 the employee’s regular rate of pay or, up to $200 per day and $2,000 in total.
Employees are also entitled to paid family and medical leave equal to 2/3 of the employee’s regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave may be counted towards the family leave credit. Employers may be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.
Eligible employers are entitled to immediately receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and the employer’s share of Medicare tax on the leave, for the period of April 1, 2020, through Dec. 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees.
Beginning with the second quarter, eligible employers will report their total qualified wages and the related health insurance costs for each quarter. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS. Contact an experienced tax professional for any necessary assistance.