On Wednesday, March 18, 2020, the U.S. Senate passed the Families First Coronavirus Response Act (the “Act”). The bill includes two payroll tax credits. These tax credits are only available to employers with fewer than 500 employees.
The COVID-19 relief bill also provides a number of nontax provisions, such as free coronavirus testing, expanded unemployment insurance and additional funding for food aid (for more information, click here).
What small business tax credits does the relief bill provide?
Sick Leave Credit
The sick leave credit cannot exceed $511 per employee per day. It is designed to assist with the cost of providing up to two weeks of paid coronavirus-related sick leave to employees. The bill limits the credit to 10 days and is in effect for wages paid through December 2020.
In addition, the employer cannot use this credit in connection with wages for which the employer is already receiving the employer credit for paid family and medical leave, under a provision previously enacted by the Tax Cuts and Jobs Act (TCJA). On a quarterly basis, the credit is limited to the total taxes imposed on the employer portion of the Social Security payroll tax and is refundable in certain circumstances.
Note: A similar credit is available to self-employed individuals. If caring for themselves the credit amounts to the lesser of their average daily self-employment income, or $511 per day. However, if the individual cares for a family member, the credit is the lesser of two-thirds of their average daily self-employment income or $200. Like the employer credit, it is limited to 10 days.
Family Leave Credit
The family leave credit, limited to $200 per day, cannot exceed $10,000 per employee. By design the credit compensates employers for providing paid coronavirus-related family leave to employees as separately required under the Emergency Family and Medical Leave Expansion Act. Similar to the sick leave credit, this credit is also limited to the employer portion of the Social Security payroll tax on a quarterly basis but is refundable in certain circumstances.
What documentation do I need for these credits?
The Act calls for the Treasury Department to issue guidance on documentation requirements. Until the Treasury provides such guidance, taxpayers should track the following information:
- Each employee requesting sick leave due to the COVID-19 virus; document whether the employee is caring for themselves or a family member;
- Compute employee wages compared to the requisite $511 or $200 per day in order to determine the actual amount of the credit.
Be prepared to supply such information as part of quarterly payroll tax return or annual income tax return filings.
How can Squar Milner help?
As the tax situation remains fluid in these times of crisis, please reach out to your Squar Milner team for the latest developments and how they may affect your business. Our team is diligently monitoring the legal, economic and tax landscape.
Disclaimer: This material has been prepared for informational purposes only, and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional tax planner or financial planner. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.