During these unprecedented times, SKDO is committed to keeping our clients and community as informed as possible through our COVID-19 Resource Page. Here are some tools we’ve created to make you aware of the many opportunities and relief programs that may be available to you.
Employee Retention Credit – Important New Benefits:
Before the Consolidated Appropriations Act 2021, any employer who received a Small Business Administration Loan under the Paycheck Protection Program (PPP loan) of the CARES Act was ineligible to receive the employee retention credit (ERC). The Consolidated Appropriations Act 2021 now allows eligible businesses who previously received PPP loans to claim the employee retention credit retroactively to March 13, 2020 for qualifying wages not covered by the PPP loan. This could be a substantial credit for many businesses! There are certain complexities with how the ERC interrelates with PPP loan forgiveness. We can strategize with you to determine your eligibility and maximize the benefits of the new ERC provisions along with your PPP loan forgiveness. See more details here.
Employee Social Security Tax Deferral (updated to reflect changes in Consolidated Appropriations Act (CAA)):
The Consolidated Appropriations Aid Act extended the repayment period of deferred employee taxes. On August 8, 2020, President Trump signed a Presidential Memorandum directing Treasury Secretary Mnuchin to permit the postponement of the withholding, deposit, and payment of the employee’s share of Social Security tax (6.2%), as well as the employee’s share of Railroad Retirement Tax Act (RRTA) Tier 1 taxes on wages and compensation paid from September 1, 2020 through December 31, 2020 for employees whose amount of wages or compensation, payable during any biweekly pay period generally is less than $4,000, or the equivalent amount with respect to other pay periods.
Employers are required to collect and remit the deferred taxes by December 31, 2021 (previously April 30, 2021). If the tax is not paid by this time, penalties and interest will accrue starting January 1, 2022. If an employee leaves between September 1, 2020 and December 31, 2021 and does not have enough wages in the final paycheck to cover the deferral, employers will have to find another way to collect the tax, or pay it out of their own pockets.
Paid Sick Leave and Expanded Family and Medical Leave (updated to reflect changes in Consolidated Appropriations Act):
The Consolidated Appropriations Act contains provisions that extend the refundable tax credits associated with paid sick and family leave under the FFCRA. It extends the refundable tax credits available to employers who provide paid sick and family leave related to the coronavirus (COVID-19) pandemic as enacted in the FFCRA through March 31, 2021. Note that the mandated paid leave for COVID-19 related reasons was not extended. The credits are applied to employers who voluntarily provide such paid leave.
Since there is so much confusion about when you have to pay an employee who might have COVID, how much you have to pay him, how long you need to pay him, etc., we decided to highlight some of the key points below.
Under the Emergency Paid Sick Leave Act, if you have less than 500 employees, you are required to pay an employee up to 80 hours of paid sick leave at his regular rate of pay if he meets any of these criteria:
- the employee is under a Federal, State, or local quarantine or isolation order related to COVID-19;
- the employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
- the employee is experiencing symptoms of COVID-19 AND seeking a medical diagnosis
- the employee is caring for an individual subject to an order described in (1) or self-quarantine as described in (2);
- is caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19; or
- is experiencing any other substantially-similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.
How much you have to pay the employee and how long you have to pay him is dependent upon the reason behind the leave. The Department of Labor has summarized the various rates and lengths here. They have also created a tool for employees to determine if they are eligible for the paid sick leave or not, which can be found here.
Here is the information your employee needs to provide in order to receive the paid sick leave:
- Dates for which he requests leave
- Reason for leave
- A statement that he is unable to work because of the above reason
You as the employer are then eligible for a reimbursement on the next payroll tax return you file equal to the required paid sick leave you pay plus half of the Medicare tax you pay. You do NOT have to pay the employer’s portion of Social Security tax on these wages. The IRS found a very confusing way to try to get this credit to you early by allowing you to delay payment of certain payroll taxes. Basically, instead of making your normal tax deposits on EFTPS for the federal withholding, Social Security, and Medicare tax, the IRS has said that you can keep those payments as an advance of your credit. We know this is really confusing so here’s an example from the IRS website that will hopefully help clarify:
Example: An Employer paid $5,000 in COVID wages and is otherwise required to deposit $8,000 in payroll taxes for wage payments made during the same quarter as the $5,000 in qualified leave wages. The Employer may keep up to $5,000 of the $8,000 of taxes he was going to deposit and will not owe a penalty for keeping the $5,000. The Employer is then only required to deposit the remaining $3,000 on its required deposit date. The remaining $5,000 will be accounted for on the quarterly payroll tax return.
If the amount of paid sick leave wages you are required to pay exceeds the amount of the payroll taxes you are required to pay for the same quarter, then you can file Form 7200 to get an advance on the credit (in order to help fund the paid sick leave wages).
If you’d prefer to pay your full payroll tax deposits the way you normally do, that is also an option! In that scenario, you would receive your refund with the next payroll tax return you file.
A few other things to note–
- Self-employed individuals and owners of a business are eligible for the paid sick leave and corresponding credits.
- A part-time employee is entitled to leave for his or her average number of work hours in a two-week period. Therefore, you calculate hours of leave based on the number of hours the employee is normally scheduled to work. If the normal hours scheduled are unknown, or if the part-time employee’s schedule varies, you may use a six-month average to calculate the average daily hours.
- The Emergency Family and Medical Leave Expansion Act requires you to pay an employee for hours the employee would have been normally scheduled to work even if that is more than 40 hours in a week. However, the Emergency Paid Sick Leave Act requires that paid sick leave be paid only up to 80 hours over a two-week period. For example, an employee who is scheduled to work 50 hours a week may take 50 hours of paid sick leave in the first week and 30 hours of paid sick leave in the second week. In any event, the total number of hours paid under the Emergency Paid Sick Leave Act is capped at 80.
Here are a few other tools you may find helpful as you try to determine whether the Emergency Paid Sick Leave Act applies to your situation:
SKDO Legislation Summaries:
As new legislation or information is released, SKDO will provide versions of the legislation in a more readable format.