The Coronavirus (COVID-19) has quickly become a global pandemic, impacting every organization and individual in some manner. As the situation evolves daily, Congress continues to work with the Trump Administration to provide economic relief in many different forms. The first form of relief came on March 18, 2020, when the Senate passed, and the President signed, the Families First Coronavirus Response Act (H.R. 6201). This Act provides for increased testing, employment relief, and a 90-day waiver of penalties and interest on tax payments. The Act is effective as of March 18, 2020.
Penalty & Interest Waiver
The IRS has issued guidance providing that penalties and interest will be waived on all tax payments for 90 days; in effect, deferring the date by which taxes must be paid. This includes taxes due for the 2019 tax year and estimated tax payments due for the 2020 tax year.
The IRS has further clarified that all taxpayers can defer federal income tax payments due on April 15, 2020, until July 15, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax.
Delayed Tax Return Filings
Treasury Secretary Steve Mnuchin has announced that filing deadlines for income tax returns will be delayed by 90 days, automatically, with no extension request needed. A taxpayer with an income tax return due April 15, 2020, will now be required to file their tax return by July 15, 2020. The IRS has advised that taxpayers requiring additional time beyond July 15, 2020, should file Form 4868 or Form 7004 to request an additional extension of time, just as they would normally be required to do.
States are still providing guidance as to what, if any, relief will be provided at the state level, but Calibre CPA Group continues to monitor all state and local tax developments and we will advise our clients on any state tax relief.
The Families First Coronavirus Response Act requires eligible employers, including businesses and tax-exempt organizations, with fewer than 500 employees to provide emergency paid sick leave and emergency paid family and medical leave to employees for COVID-19 related reasons.
Specifically, when an employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis, employers must provide 10 days (up to 80 hours) of paid sick leave at 100% of the employee’s wages. Additionally, an employee who is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or whose childcare provider is unavailable for reasons related to COVID-19, and/or the employee is experiencing substantially similar conditions (as specified by the U.S. Department of Health and Human Services) is also eligible for 10 days of paid sick leave at 2/3 of the employee’s regular wages.
In addition to paid medical leave, employers must also provide up to an additional 10 weeks of paid family leave (at 2/3 of regular wages) to employees who must care for a child if the child’s school or place of care is closed due to COVID-19 related reasons.
However, 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 childcare is unavailable, in cases where the viability of the business is threatened.
In order to assist employers in providing Coronavirus related paid leave, the Families First Coronavirus Response Act provides a generous tax credit to employers and the self-employed that is designed to immediately and fully reimburse, dollar-for-dollar, for the cost of providing Coronavirus-related leave to employees. Eligible employers are also entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
The tax credit is fully refundable and is applied against employers’ payroll taxes; or in the case of self-employed individuals, the credits will offset their estimated tax payments. Employers are permitted to retain an amount of payroll taxes equal to the amount of qualifying paid leave, rather than deposit the payroll taxes with the IRS. The 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.
Furthermore, if retained payroll taxes are insufficient to offset qualified paid leave wages, employers can claim a refund of tax credits on a quarterly basis by filing Form 941. For employer’s needing cash even faster, the IRS has announced that an expedited advance will be available via a streamlined claim form that will be released this week. The IRS expects to process expedited requests in two weeks or less, greatly improving cash flow for affected employers and self-employed.
Amount of Tax Credit
Employers may claim a tax credit equal to 100% of the qualified paid sick leave wages that are paid to an employee, up to $511 per day, for a maximum of 10 days (aggregate total credit cannot exceed $5,110), if an employee is on leave because he or she:
- is subject to a federal, state or local quarantine or isolation order related to COVID-19; or
- has been advised by a healthcare provider to self-quarantine due to COVID-19 related concerns; or
- is experiencing symptoms of COVID-19 and seeking a medical diagnosis.
For an employee who is caring for someone with Coronavirus, or is caring for a child because the child’s school or childcare provider is closed due to the Coronavirus, eligible employers may claim a credit for 2/3 of the employee’s regular rate of pay, up to $200 per day, for 10 days ($2,000 maximum aggregate credit).
In addition to the credit for paid sick leave, if an employee is unable to work because of a need to care for a child whose school or child care provider is closed or unavailable due to the Coronavirus, eligible employers may receive a refundable childcare leave credit. This credit is equal to two-thirds of the employee’s regular wages, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the childcare leave credit.
Calibre CPA Group understands our clients and the issues that impact them. We will continue to monitor new developments and timely communicate relevant information. We encourage our affected clients to contact us at 202.331.9880 with any questions or concerns.
Article prepared by:
Jeffrey W. Lewis, CPA, CFE | Tax Partner
Justin W. Herring, CPA, MST | Tax Manager