Employer Payroll Tax Provisions in CARES Act – Credits and Delayed Payments
There are two provisions in the CARES Act that provide relief in the form of credits and one provision that allows for delayed payment options for certain types of employer paid payroll taxes.
The two credit programs are: 1) Employee retention credit for employers subject to closure due to COVID–19, and 2) Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act (which was actually passed in the Families First Coronavirus Response Act (FFCRA) also called “COVID II”, which was the law passed before the CARES Act also called COVID III).
The payroll tax deferral provision is called the “Delay of payment of employer payroll taxes.”
Employee retention credit for employers’ subject to closure due to COVID–19
The provision provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis., to improve employer liquidity during the crisis.
The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shutdown order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.
- Payroll tax credit for each calendar quarter for a fixed percentage (50%) of eligible wages, up to $10,000 per employee for 2020;
- Excess of credit over payroll tax liability are refundable
- Employers can use Form 7200, Advance Payment of Employer Credits Due to COVID-19 and its instructions to offset the employee retention credits (and family and sick credit when applicable see below) against not only the employer’s share of Social Security taxes on a payroll tax return, but also federal income tax withholding and the full amount of the employer’s and employee’s share of payroll taxes, and receive an immediate benefit equal to the anticipated credits by reducing the amount of the required payroll deposits by the computed credits.
- This is also the form used if credits exceed payroll deposits that result in an immediate refund to the employer
- Available for employers with a business that was already carrying on a trade or business in calendar year 2020; and
(1) has been fully or partially suspended during a calendar quarter in 2020 due to an order from a governmental authority related to COVID-19; or
(2) during a period beginning with the first quarter (beginning after December 31, 2019) in which gross receipts for the business were less than 50% relative to the same quarter in 2019, and ending on the first quarter for which gross receipts exceed 80% relative to that quarter in 2019
- No double-dipping allowed with the FMLA and emergency leave payroll tax credits FFCRA COVID II see below).
- The credit is based on qualified wages paid to the employee.
- For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above.
- For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order.
- The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee.
- The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.
- An employer is ineligible to receive the credit under this provision if it acquires a loan through the Paycheck Protection Program and for which all or part of the loan was forgiven.
- For more information, visit the IRS Basic FAQs for the Employee Retention Credit
Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act
FFCRA helps by reimbursing American private employers that have fewer than 500 employees with tax credits for the cost of providing employees with paid leave taken for specified reasons related to COVID-19. The purpose is to enable employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.
- New required paid family and sick leave, but with an employer credit against employer payroll expenses
- Starting April 1, 2020
- Employees receive up to 80 hours of paid sick leave and expanded paid child care leave when employees' children's schools are closed or child care providers are unavailable, for COVID-19 related reasons.
- Employers receive 100% reimbursement for paid leave pursuant to the Act
- Health insurance costs are also included in the credit.
- Employers face no payroll tax liability.
- Self-employed individuals receive an equivalent credit.
- The Act provided mandatory employer provided paid sick leave and expanded family and medical leave for COVID-19 related reasons
- But also created the refundable paid sick leave credit and the paid child care leave credit for eligible employers.
- Employers can use Form 7200, Advance Payment of Employer Credits Due to COVID-19 and its instructions to offset the family and sick leave credits (and the employee retention credits see above) against not only the employer’s share of Social Security taxes on a payroll tax return, but also federal income tax withholding and the full amount of the employer’s and employee’s share of payroll taxes, and receive an immediate benefit equal to the anticipated credits by reducing the amount of the required payroll deposits by the computed credits.
- This is also the form used if credits exceed payroll deposits that result in an immediate refund to the employer
Eligibility And Pay Levels for Employee
- 100% of pay if Employee is sick with COVID-19:
- Up to two weeks (up to 80 hours) of paid sick leave at 100% of the employee's pay
- When: the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis.
- 75% of pay if Employee must Care for a sick family member or kids are out of school:
- Up to two weeks (up to 80 hours) of paid sick leave at 2/3 the employee's pay
- When: 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 child care 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.
- Additional 10-weeks at 75% Pay to Care of kids out of school
- An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional ten weeks of expanded paid family and medical leave at 2/3 the employee's pay.
Eligibility and Credits for Employer
- Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act.
- Eligible employers will be able to claim these credits based on qualifying leave they provide between April 1, 2020 and December 31, 2020.
- Equivalent credits are available to self-employed individuals based on similar circumstances
- Reimbursement will be quick and easy to obtain.
- An immediate dollar-for-dollar tax offset against payroll taxes will be provided
- Where a refund is owed, the IRS will send the refund as quickly as possible.
- Employer Credit when Employee is Sick at 100% of Pay:
- Receive a refundable sick leave credit for sick leave at the employee's regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days
- Employer Credit when Employee is caring for someone with Coronavirus, or is caring for a child because the child's school or childcare facility is closed, or the child care provider is unavailable due to the Coronavirus:
- Employers may claim a credit for 2/3rds of the employee's regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days.
- In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus:
- Employers may receive a refundable child care leave credit.
- This credit is equal to two-thirds of the employee's regular pay, capped at $200 per day or $10,000 in the aggregate.
- Up to 10 weeks of qualifying leave can be counted towards the child care leave credit.
- Plus Additional Credit for Maintaining Health Insurance: Employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
Small Business Protection
- Only an option if, employers with fewer than 50 employees, and
- An exemption from the requirements to provide leave to care for a child whose school is closed, or child care is unavailable in cases where the viability of the business is threatened.
- The Department of Labor will provide emergency guidance and rulemaking to clearly articulate this standard.
Impact and Limitations on Employee Termination
- Generally, employees have a right to return to work if they take paid sick leave or expanded family and medical leave under the Emergency Paid Sick Leave Act or the Emergency Family and Medical Leave Expansion Act.
- The law and recent regulatory interpretations require employers to provide the same (or a nearly equivalent) job to an employee who returns to work following leave.
- In most instances, an employee is entitled to be restored to the same or an equivalent position upon return from paid sick leave or expanded family and medical leave.
- An employer is prohibited from firing, disciplining, or otherwise discriminating against an employee because they take paid sick leave or expanded family and medical leave.
- Nor can an employer fire, discipline, or otherwise discriminate against an employee because you filed any type of complaint or proceeding relating to these Acts, or have or intend to testify in any such proceeding.
Exceptions to the General Prohibition on Employee Termination:
Employees are not protected from employment actions, such as layoffs, that would have affected you regardless of whether you took leave.
An employer can lay off an employee for legitimate business reasons, such as the closure of the worksite. However, the employer must be able to demonstrate that the employee would have been laid off even if the employee had not taken leave.
Your employer may also refuse to return you to work in your same position if you are a highly compensated “key” employee (which is defined as a salaried, FMLA-eligible employee who is among the highest-paid 10 percent of all of the employer’s employees within 75 miles), or if your employer has fewer than 25 employees, and you took leave to care for your own son or daughter whose school or place of care was closed, or whose child care provider was unavailable, and all four of the following hardship conditions exist:
- your position no longer exists due to economic or operating conditions that affect employment and due to COVID-19 related reasons during the period of your leave;
- your employer made reasonable efforts to restore you to the same or an equivalent position;
- your employer makes reasonable efforts to contact you if an equivalent position becomes available; and
- your employer continues to make reasonable efforts to contact you for one year beginning either on the date the leave related to COVID-19 reasons concludes or the date 12 weeks after your leave began, whichever is earlier.
Dept of Labor FFCRA Q&A are a good resource for more specific questions and common scenarios.
Delay of payment of employer payroll taxes
The provision allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax (not the Medicare/HI 1.45%) they otherwise are responsible for paying.
- Employers generally are responsible for paying a 6.2-percent Social Security tax on employee wages.
- The provision requires that the deferred employment tax be paid over the following two years:
- half of the amount required to be paid by December 31, 2021 and
- the other half by December 31, 2022.
- Effectively amounts to the equivalent of a short-term interest free loan in the amount of the employer’s portion of SS tax for its employees.
- During the “payroll tax deferral period,” which means the period beginning on March 27, 2020 and ending before January 1, 2021.
- An employer is ineligible to delay paying its portion of Social Security tax if it acquires a loan through the Paycheck Protection Program and for which all or part of the loan was forgiven.