Updated Guidance on Tax Credits for Paid Sick, Paid Family and Medical Leave
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Updated Guidance on Tax Credits for Paid Sick, Paid Family and Medical Leave and Employee Retention Credits as well as Advance Payments of these credits
The IRS has issued guidance indicating that wages paid for sick and family leave under the Families First Coronavirus Response Act (FFCRA) starting today, April 1, 2020, through December 31, 2020, will qualify for payroll tax credits provided under this section. Employee Retention tax credits apply to qualifying wages paid from March 13 – December 31, 2020. Please note that the wages you use for these tax credits, are not eligible wages for Paycheck Protection Loans.
Further, the IRS has also released a draft form 7200, which employers can use to request advance payments of the credits. Advance payments can be obtained for three types of payroll tax credits, including those under the FFCRA mandate for paid sick and family leave as well as the Employee Retention Credit provided in the Coronavirus Aid, Relief, and Economic Security Act (CARES).
The guidance recommends that employers retain an amount of employment taxes equal to the wage paid for the qualified sick and family leave wages, and their employee retention credit, rather than depositing these amounts with the IRS. If your credits exceed the amount of payroll taxes due, then you may request an advance payment by filing the form 7200.
The FFCRA mandate requires employers, with fewer than 500 employees, to pay sick and family leave wages for COVID-19 related reasons. In exchange for mandating paid leave, employers will receive a payroll tax credit for payments of qualifying wages. The payroll tax credits are limited to $511/day, for up to 80 hours or ten days, for qualifying sick leave, and $200/day for qualifying family leave for up to ten weeks. In addition to qualifying wages, an employer may include a pro-rata piece of the cost of health care of those employees towards the credit.
Employers are also eligible for Employee Retention Credit if their business has been fully or partially suspended as a result of government orders limiting commerce, travel, or group meetings. Also, employers that have experienced a reduction in quarterly receipts of 50% or more will qualify for relief. The tax credit is available under this section is generally equal to 50% of the payroll taxes paid on qualifying wages, limited to $10,000. Under this section, qualifying wages are different for those employers with less than 100 employees vs. those with more than 100 employees. In addition to qualifying wages, an employer may include a pro-rata piece of the cost of health care of those employees towards the credit.