This post was prepared by my partner Heather A. Kmetz.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act which passed yesterday provides employers with tax incentives to retain employees and continue operations, including amendments to the Families First Coronavirus Response Act (FFCRA, enacted 03/18/2020):
- Expanded Payroll Tax Relief. Employers are allowed to delay their share of Social Security tax that would have been deposited between the date of the CARES Act’s enactment and December 31, 2020. Instead, 50 % of those taxes must be deposited by December 31, 2021, and the remainder deposited by December 31, 2022. (Self-employed individuals have similar relief, but still must pay 50 % of the Social Security tax portion of these self-employment taxes, i.e. the employee’s share, in the same manner as usual.) Employers who had indebtedness forgiven under the Small Business Act are not eligible for this payroll and self-employment tax deferral relief.
- Employers Entitled to Advance of FFCRA Payroll Credits. Employers subject to FFCRA may receive an advance (including any refundable portions) of FFCRA payroll credits to help cover the expense of providing the required paid leave under the FFCRA.
- More Employees Eligible for Paid Leave. The paid sick and family leave provisions of FFCRA are available to employees who were laid off not earlier than March 1, 2020, had worked for the employer for at least 30 of the last 60 calendar days prior to being laid off and were rehired by the employer.
- Paid Leave Clarified. Employers may elect to provide more paid leave than mandated by the FFCRA; however, the corresponding payroll tax credits are capped at the FFCRA’s mandatory paid leave wage amounts.
CARES Act Employee Retention Credit For Employers Subject to Closure due to COVID-19:
While the FFCRA allows payroll credits for employers who are required to provide paid leave to employees affected by COVID-19, the employee retention credit is designed to relieve the economic strain COVID-19 may put on the business. For wages paid after March 12, 2020 and before January 1, 2021, eligible employers (including tax-exempt organizations) are allowed a new refundable payroll tax credit equal to 50% of the qualified wages paid. The total eligible wages per employee are $10,000, resulting in a maximum credit of $5,000 per employee.
To qualify for the credit, the business must have operated at some point during 2020 and COVID-19 has to have resulted in either of the following economic conditions:
- Business operations are fully or partially suspended due to orders from an appropriate government authority limiting commerce, travel or group meetings due to COVID-19; or
- Business gross receipts for at least one calendar quarter are less than 50 % of the gross receipts received during the same calendar quarter(s) in the prior year. (This period of significant decline in gross receipts is recognized until the gross receipts for a calendar quarter are greater than 80 % of gross receipts for the same calendar quarter in the prior year).
Further, employers with more than 100 full-time employees during 2019 must additionally prove that the economic condition impacting their business renders an employee unable to provide services to that employer. For employers with 100 or fewer full-time employees, the credit is allowed regardless of whether an employee is able to provide services, as long as one of the economic conditions is demonstrated.
We will continue to post about the FFCRA (as additional regulations are released) and the CARES Act. If you have employment questions, please feel free to reach out, and if you have tax questions, Heather can be reached at email@example.com.