To help employers contend with the uncertainty and challenges brought on by the COVID-19 outbreak, recent legislation has made new relief opportunities available. We outline the details of three of these opportunities—the employee retention tax credit (ERTC), the paid sick leave credit, and the paid family leave credit below.
As part of H.R. 748, Coronavirus Aid, Relief and Economic Security Act (CARES), beginning March 12, 2020, eligible employers may generate a tax credit used to offset their employment taxes, and apply for a refund for any excess credit generated.
Employers, including tax-exempt employers, that meet one of the following conditions:
For employers with under 100 full-time employees, measured as average employment in 2019, the credit applies to wages paid to all employees. For employers with more than 100 full-time employees, the credit only applies to wages paid to employees who aren’t providing services. This may include the excess of wages paid to an employee who is paid full-time wages but only working part-time hours.
The credit is equal to 50% of wages paid to an employee after March 12, 2020, in each qualifying calendar quarter, up to a total of $10,000 for all quarters, per employee. The maximum credit may be worth up to $5,000 per eligible employee.
The credit expires at the earlier of when the full $10,000 is used up or when gross receipts for a quarter in 2020 are above 80% of gross receipts for the same quarter in 2019.
Qualified wages, for purposes of this program, include qualified health plan expenses incurred by the employer.
ERTC can’t be used in conjunction with the Paycheck Protection Program loans, or use the same wages for calculating the paid leave credits or the work opportunity tax credit (WOTC).
As part of H.R. 6201, Families First Coronavirus Response Act, that was signed into law on March 18th, 2020, two refundable payroll tax credits became available to small employers as part of a mandated two-week paid leave policy.
Small employers with less than 500 full-time and part-time employees whose employees couldn’t work for any of the following reasons:
Beginning April 1, 2020, eligible employers may generate a tax credit used to offset their employment taxes, including withholding federal income taxes, and the employee and employer share of Social Security and Medicare taxes with respect to all employees and apply for a refund for any excess credit generated.
For employees who must self-isolate or those who obtain a diagnosis, as described in the previous section, employers may generate a credit, per employee, for qualified sick wages paid at 100% rate of normal pay, but capped at $511 per day, for up to an aggregate total of 10 days or $5,110 in wages.
For employees who need to care for a family member or child, employers may generate a credit, per employee, for qualified sick wages paid at 2/3 rate of normal pay, but capped at $200 per day, for up to an aggregate total of 10 days or $2,000.
For employees who’ve worked for the employer for 30 days and who need to care for a family member or child, employers may generate a credit for qualified paid leave wages paid at 2/3 rate of normal pay, but are capped at $200 per day, for up to an aggregate 10 weeks or $10,000 for all calendar quarters.
Leave credits can’t be used in conjunction with the Paycheck Protection Program loans. Additionally, the same wages can’t be used to calculate the ERTC, the federal Employer Paid Family & Medical Leave credit (IRC 45S) or WOTC.
If you have questions about these credits or would like assistance with claiming them, please contact your Moss Adams professional. We also offer a web-based screening tool, MaxCredits®, which can help you reduce the administrative burden of pursuing credits. Learn more here.
Special thanks to MaryCaitlin Willcuts, Manager, State & Local Tax Services, for her contributions to this article.