Small and medium-sized businesses can start to take advantage of 2 new refundable payroll tax credits, designed to 100% reimburse them immediately for the cost of providing Coronavirus-related time away to their employees. This relief to employees and small & midsize businesses is provided under the Families First Coronavirus Response Act, signed into law on March 18, 2020. Subsequent legislation, the CARES Act, includes a provision that delays payment of employer payroll taxes due in 2020. Half will be due by December 31, 2021 and the rest will be due by December 31, 2022. These same dates and numbers apply to tax owed by self-employed individuals.
For an employee who is unable to work because of coronavirus related quarantine, eligible employers may receive a refundable sick leave credit at the employee's regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days. For an employee who is caring for someone with coronavirus, or is caring for a child because the child’s school is closed, eligible employers may claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit which is determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
Employees receive up to 2 weeks (80 hours) of paid sick leave (either 100 percent or 2/3 of employee's pay) and expanded paid child care leave when employees' children’s schools are closed due to COVID-19. An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional 10 weeks of expanded paid family and medical leave. Eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee's regular pay, up to $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Worth mentioning though is employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed or child care is unavailable in cases where the viability of the business is threatened.
Employers will receive an immediate dollar-for-dollar tax offset against payroll taxes. Payroll taxes that are available for retention include: withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees. Eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS. Eligible employers will be able to claim these credits based on qualifying leave they provide between the effective date and December 31, 2020. If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able to file a request for an accelerated payment from the IRS. Equivalent credits are available to self-employed individuals based on similar circumstances.
Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act. Eligible employers can use the funds to provide employees with paid leave, either for the employee's own health needs or to care for family members. Furthermore, employers will be able to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus. Employers are required to comply with the Act within a specified period; however, there is currently in effect, a 30-day compliance period in which enforcement actions against any employer for violations of the Act are subject to 30-day non-enforcement period as long as the employer has acted reasonably and in good faith to comply with the Act.
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