6 Apr by Rachel Picarelli

Business Tax Credits to provide leave to employees during COVID-19

On March 20, 2020 the U.S. Treasury Department, U.S. Department of Labor along with the Internal Revenue Service revealed a Coronavirus Response Act. Many small to middle-sized businesses can begin using one of the two brand new refundable payroll tax credits. These credits are intended to fully refund the cost of offering Coronavirus, COVID-19, to leave to employees who qualify. In order to be an eligible employee, you must be unable to work due to a quarantine order and/or if you are experiencing symptoms of COVID-19 and are seeking a medical diagnosis. Additionally, an employee who is unable to work because of a need to care for an individual, such as a close family member, subject to the quarantine order may qualify. An Employee who is also unable to work because of the need to care for a child whose school is closed or the child care provider is no longer operating for reasons related to the Coronavirus, COVID-19 will qualify also. Once determined an eligible employee, the employee can receive two weeks (80 hours) paid leave at 2/3 of the employees’ regular rate of pay. In the case where an employee is unable to work due to a need to care for a child whose school is closed for reasons pertaining to COVID-19, can also receive up to an additional 10 weeks of this expanded medical leave. The expanded medical leave payout will be equivalent to 2/3 of the employees’ original pay.

The first refundable credit is called the Paid Sick Leave Credit. An employee who is unable to work due to a coronavirus quarantine, self-quarantine or due to experiencing Coronavirus symptoms and are awaiting a medical diagnosis allows the employer to become eligible to provide a paid family and medical leave. Once you know you’re an eligible employer you are now able to receive a refundable sick leave credit for sick leave paid to an employee at their regular rate of pay. The rates have a threshold and for the Paid Sick Leave Credit the rates are up to $511 per day, or a total of $5,110 over a period of 10 days. If a paid leave is given to an employee who is caring for a child because a school is closed or a daycare provider is unavailable due to the Coronavirus, the employer may claim a credit for two-thirds of the employee’s regular rate of pay. The threshold for these eligible employees is up to $200 per day with a total of $2,000 over a period of 10 days. Employers who are eligible may also be able to qualify for an additional tax credit which is factored in to help maintain health insurance coverage for the employees during this paid family and medical leave.

Beyond the Paid Sick Leave Credit there is also an additional credit that is called the Child Care Leave Credit. This credit applies to an eligible employee who is unable to work so they can care for a child whose school or day care provider is closed for reasons related to the Coronavirus. It allows the eligible employer to receive a refundable childcare leave credit. This credit has an equivalence to two-thirds of the employee’s regular rate of pay. The threshold for this credit would be maxed out at $200 per day or $10,000 in total. The timeframe for this credit can be extended out for 10 weeks to employees who qualify. Like the paid sick leave credit, Employers may also receive an additional tax credit which is factored in to help maintain health insurance coverage for the employees during this paid family and medical leave. This is all a part of the families first coronavirus response.

For the funds to be made available immediately to employers so they can provide this leave to its employees, the Internal Revenue Service has provided a credit available to the employers. Under normal circumstances, an employer is required to withhold taxes from the employee’s paycheck. These taxes would include federal income taxes and the employee’s amount of Social Security and Medicare taxes. Once the employer withholds the amounts, they are required to deposit them to the Internal Revenue Service along with their share of the taxes. These deposits are known as Estimated Quarterly Tax Deposits and are necessary to satisfy the payroll tax liability when Form 941, Employer’s Quarterly Federal Tax Return is filed.  During the Coronavirus, the Internal Revenue Service has released that eligible employers who pay to qualify sick of childcare leave will be allowed to keep an amount of the federal payroll taxes equal to the amount paid to the employees who qualify for the paid leave. Employers will be able to use these funds for paid leave instead of depositing them with the Internal Revenue Service. The taxes that can be held under this credit are federal income taxes, the employee and employer’s share of both the Social Security and Medicare taxes. If the payroll taxes are not enough funds to cover the cost of paying the employees a qualified sick and childcare leave, employers are able to apply for an accelerated request for funds. In order to submit a request you can click the following link: https://covid19relief.sba.gov/#/. This advance is known as an Economic Injury Disaster Loan. The U.S. Small Business Administration is allowing any small business owners within the United Stated to apply for the loan and it could provide an advance of up to $10,000 to those who qualify. The purpose of this loan is to provide relief to businesses that are currently being faced with a temporary loss of revenue. Once a request is filed through the U.S. Small Business Administration the funds will be available three days after the application has been deemed successful. This loan advance given to employers will not have to be repaid. The whole amount will be forgiven. There are additional loans under the Act that has been put in place during this health crisis.  The loans can be used to pay payroll, accounts payable, debts or other bills that cannot be paid at this time due to Coronavirus. These additional loans will have an interest rate of 3.75% for small businesses and 2.75% for non-profit businesses. The additional loans will have to be paid back and the terms are being expanded up to a maximum of 30 years to keep payments affordable for the taxpayers. All definitive terms are determined case-by-case.

If an Employer has fewer than 50 employees, they will be eligible for an exemption from the Child Care Leave Credit. This credit applies to employees who must take a leave to care for a child whose school is closed, or a childcare facility that is unavailable. The reason a small business with less than 50 employees may be exempt is because the requirements of these credits could jeopardize the viability of the business operations. The Labor Department will provide clear qualification for this standard exemption.

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