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Payroll Tax Credits and Other COVID-19 Payroll-Related Benefits

AAFCPAs would like to make clients aware of sections of the laws enacted over the past several weeks by the Federal government to ease the economic impact on employees and employers as they relate to payroll-related benefits. Employers are presented with two types of new tax credits, and a tax deferral option available as part of the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

Employers must consider eligibility for payroll related benefits in relation to other federal programs, including the Loan Programs. Read AAFCPAs’ detailed guidance on the SBA Disaster Loans. >> We have summarized below some of these new benefits, including the restrictions and other considerations that apply. AAFCPAs advises clients to consider all available options and to assess which one(s) are best for your circumstances.

Key Takeaways

There are three new Payroll-based benefits available for eligible employers:

  • Deferral of Employer Social Security Tax (CARES Sec 2302)
  • Paid Sick/Family Leave Credit (FFCRA as amended in CARES Secs 7001, 7003)
  • Employee Retention Credit (CARES Sec 2301)

Each program has different rules for eligibility, documentation, restrictions, and applications.  Highlights are noted below.

How May AAFCPAs Help?

AAFCPAs understands how complicated this constantly changing environment is. We have formed a COVID-19 Task Force dedicated to studying and advising clients on the business implications of new legislation and the changing business dynamics caused by the Coronavirus. We are here for you! Together, we will make it through this difficult time of change.

The programs mentioned below are somewhat interrelated and we can provide guidance on the cash flow and other impact the programs may have on your organization.  The credits and deferrals will be transacted through your payroll provider, so it is important to contact them as soon as possible for specific procedures. Please note that the descriptions below are highlights of the benefits and do NOT include all situations which may limit the benefit as well as other restrictions.  Advice from your AAFCPAs Tax Partner is essential.

Overview of Programs

Deferral of Employer Social Security taxes (CARES Sec. 2302)

Who is Eligible?

All employers may defer the deposit and payment of the employer’s share of social security tax.

Value of Credit

Beginning April 2020, all employers may elect to defer payment of the 6.2% employer Social Security tax through December 31, 2020. Deferred tax amounts would be paid in equal amounts over two years, with payments due on December 31, 2021 and December 31, 2022. The benefit may not be used for wages already receiving benefit under Paid/Sick Family Leave Credit or the Employee Retention Credit.

How to Apply?

As a deferral, these taxes will become collectible by the IRS starting in December 2021. Employers should work with their payroll providers to keep careful track of amounts accrued and be prepared to pay the amounts when due.

Paid Sick/Family Leave Tax Credits (FFCRA and Amended in CARES Act Secs 7001, 7003)

AAFCPAs recently released guidance to help clients understand what you need to know about paid sick/family leave as required by the Families First Coronavirus Response Act (FFCRA). >>

The new Paid Sick/Family Leave Tax credits are intended to ease the burden on employers who are providing this benefit to their employees affected by COVID-19.

Who is Eligible?

Under FFCRA, employees who have been employed for at least 30 days are eligible to take leave under the Emergency FMLA. Employers who pay employees emergency sick/family leave time due to a COVID-19 related emergency are allowed the credit.

Value of Credit

Private sector eligible employers with less than 500 employees are allowed a credit against employer Social Security tax liability equal to 100% of the qualified sick leave wages paid, plus the proportionate share of health care costs incurred and the applicable employer Medicare tax on such wages. The benefit may not be used for wages already receiving benefit under the Deferral of Employer Social Security Tax or the Employee Retention Credit.

How to Apply?

Eligible Employers may claim tax credits for qualified leave wages paid to employees on leave due to paid sick leave or expanded family and medical leave for reasons related to COVID-19 for leave taken beginning on April 1, 2020, and ending on December 31, 2020.  Eligible Employers will claim the credits on their federal employment tax returns (e.g., Form 941, Employer’s Quarterly Federal Tax Return), but they can benefit more quickly from the credits by reducing their federal employment tax deposits.  If there are insufficient federal employment taxes to cover the amount of the credits, an Eligible Employer may request an advance payment of the credits from the IRS by submitting a Form 7200, Advance Payment of Employer Credits Due to COVID-19. Eligible employers claiming the credits for qualified leave wages, plus allocable qualified health plan expenses and the eligible employer’s share of Medicare taxes, must retain records and documentation related to and supporting each employee’s leave to substantiate the claim for the credits, as well retaining the Forms 941, Employer’s Quarterly Federal Tax Return, and any other applicable filings made to the IRS requesting the credit. Please contact your payroll provider for their specific procedures.

Employee Retention Credit (CARES Sec 2301)

Who is eligible?

The credit is available to all employers regardless of size, including tax-exempt organizations. Qualifying employers must fall into one of two categories:

  1. The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
  2. The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

Employers that obtain PPL loans are not eligible for the Employee Retention Credit.

Value of Credit

The amount of the credit is 50% of qualifying wages paid up to $10,000 in total wages. Wages paid after March 12, 2020, and before Jan. 1, 2021, are eligible for the credit. Wages taken into account are not limited to cash payments, but also include a portion of the cost of employer provided health care.

  • For employers with more than 100 employees, this credit is for wages paid to employees that provided no services during the shut-down.
  • For employers with 100 or less employees, all wages qualify for the credit without regard to whether the employee worked or the employer was in operation.

The benefit may not be used for wages already receiving benefit under Paid/Sick Family Leave Credit or the Deferral of Employer Social Security Tax.

How to apply:

Employers will be reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.

Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19. Please discuss with your payroll provider with regards to specific procedures.

AAFCPAs will continue to monitor communications from the IRS, the Treasury Department, and the MA DOR. We will keep you informed as changes occur or become clarified.

If you have any questions please contact: Brittany Besler, MBA, CPA, Esq. at 774.512.9001, bbesler@nullaafcpa.com; Janice O’Reilly, CPA, CGMA, 774.512.9046, joreilly@nullaafcpa.com; or your AAFCPAs Partner.

About the Authors

Janice O'Reilly CPA
Janice is a Partner in the Consulting Division of AAFCPAs and leader of the Managed Accounting Solutions (MAS) practice, which provides “right-size” outsourced accounting solutions, from cloud-based bookkeeping to CFO deliverables, designed to optimize the effectiveness of the modern finance function.  Public, privately-held, and nonprofit organizations value the pragmatic assessment, infrastructure set-up, and flawless execution of their accounting & finance deliverables—all completed with the resources and technical expertise of AAFCPAs’ full-service CPA and consulting firm. Janice is a charismatic leader and collaborative senior finance and business executive with an entrepreneurial approach to problem solving, and extensive global operating experience.
Brittany Besler
Brittany possesses a unique combination of tax, legal, and business backgrounds, and is a valuable member of AAFCPAs’ Tax practice. She provides tax planning, research, and compliance solutions for corporations, partnerships, nonprofits, individuals, estates & trusts. Brittany advises businesses and individuals on various federal, state, local and foreign tax-related issues, including counseling clients on the consequences of new and updated tax laws. She assists clients in the creation of appropriate and optimal organizational structures, and advises on tax planning and tax exemption compliance. She advises newly-formed and well-established nonprofit clients on meeting compliance requirements of various government agencies, including the IRS rules on fundraising and political activities.