We wanted to remind employers affected by COVID-19 about important new payroll credits and FICA payment deferral available to them. Below is an overview, with excerpts from IRS announcements issued this week:
Deferral of employer FICA taxes and certain railroad retirement taxes accrued through December 31, 2020
The CARES Act provides that employers may defer the FICA tax deposits and payments for the employer’s portion of Social Security taxes and certain railroad retirement taxes. The deferral applies to deposits and payment for payroll periods after March 27, 2020. The deferred amounts will be due, 50% by December 31, 2021 and the remaining 50% by December 31, 2022. This could be a significant benefit to taxpayers to preserve cash flow in the short term.
Employers that received a Paycheck Protection Program (PPP) loan may not defer the deposit and payment of the employer’s share of Social Security tax that is otherwise due after the employer receives a decision from the lender that the loan was forgiven. Any payments made prior to the clarification in the law for this provision will not be refundable according to the IRS. Therefore, although this deferral is for any deposits or payments starting with the first payroll period of the second quarter (after March 27, 2020) any taxpayer who made deposits in the second quarter will not be able to have these payments refunded.
For more information, please refer to the IRS FAQs.
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. Eligible employers can claim this credit for wages paid after March 12, 2020, and before January 1, 2021. This credit is available to all employers regardless of size, including tax-exempt organizations.
For purposes of this credit, employers experiencing an economic hardship include those with suspended operations due to a government order related to COVID-19 or that have experienced a significant decline in gross receipts. An employer may have to fully or partially suspend operations because a governmental order limits commerce, travel, or group meetings due to COVID-19 in a manner that prevents the employer from operating at normal capacity. A significant decline in gross receipts begins in the first calendar quarter in 2020 in which an employer’s gross receipts are less than 50% of its gross receipts for the same quarter in 2019. The decline ends the first calendar quarter in 2020 after the quarter in which the employer’s gross receipts are greater than 80% of its gross receipts for the same quarter in 2019.
For more information, please refer to the IRS announcement.
Paid Sick Leave and Family Leave Credit
The paid sick leave credit is designed to allow business to get a credit for an employee who is unable to work (including telework) because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis. Those 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.
The employer can also receive the credit for employees who are unable to work due to caring for someone with Coronavirus or caring for a child because the child’s school or place of care is closed, or the paid childcare provider is unavailable due to the Coronavirus. Those 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.
For more information, please refer to the May 7 IRS announcement.
Should you have any questions, please don’t hesitate to reach out to your tonneson + co representative.