March 23, 2020
Last week President Trump signed the Families First Coronavirus Response Act (the “Act”) into law. The Act provides that certain employers with less than 500 employees must provide paid sick and family leave to employees to care for their own Coronavirus health needs or to care for the needs of family members (for more information on paid sick and family leave mandated under the Act, see Congress Enacts A Sweeping Leave Bill in Response To COVID-19).
In order to help small and midsized businesses with the costs of the new Coronavirus paid leave, the Act includes refundable payroll tax credits (against the employer portion of Social Security taxes) for the paid leave wages. For an employee who is unable to work because he or she is quarantined or ill as a result of the Coronavirus, eligible employers will receive a refundable credit up to $511 per day for up to 10 days, or $5,110 per employee. For an employee who is unable to work because he or she is caring for someone with Coronavirus, or is caring for a child because the child’s school or childcare provider is closed, eligible employers will receive a refundable credit for up to $200 per day for up to 10 days, or $2,000 per employee. The Act offers an additional credit for wages paid to an employee who is unable to work to care for a child whose school or childcare provider is closed. This credit is capped at $200 per day for up to 10 weeks, or $10,000 per employee.
Anticipated Guidance Intended to Help Businesses Quickly Recover Costs of COVID-19 Leave
On Friday, March 20, the Treasury Department and IRS announced that guidance will be released this week that will allow employers to use withheld payroll taxes to make qualified leave payments. Normally, when an employer pays its employees, it withholds federal income taxes and the employees’ share of Social Security and Medicare taxes. Employers then deposit these taxes with the IRS. The Treasury and IRS have indicated that under the anticipated guidance to be released this week, employers will be able to use the withheld taxes in order to make qualified leave payments. Additionally, since these credits are refundable, employers will be able to request accelerated refunds, if applicable.
For example, if an eligible employer pays $5,000 in qualified sick leave wages, and is otherwise required to deposit $8,000 in payroll taxes, the employer could use $5,000 of the taxes it would normally be required to deposit to make qualified leave payments. The employer would then only be required to deposit $3,000. If an eligible employer pays $10,000 in qualified sick leave wages, and is required to deposit $8,000 in taxes, the employer could use the entire $8,000 to make qualified leave payments, and file a request for an accelerated refund for the remaining $2,000.
Tax Filing Deadline Now Extended to July 15
The Treasury Department and IRS have now announced that the federal income tax filing due date has been automatically extended from April 15, 2020 to July 15, 2020. Under previous guidance, taxpayers were still required to file their taxes by April 15, but had until July 15 to make any required payments. However, after widespread confusion and a request by President Trump, both the filing and payment deadlines have been extended to July 15. Nebraska Governor Pete Ricketts also announced that the State of Nebraska will follow suit and has extended its income tax deadline to July 15.
Please contact the McGrath North Tax & Estate Planning Group or Labor & Employment Group with any questions.
We will keep readers advised of further developments.