As you know, the Families First Coronavirus Response Act that was signed by President Trump on March 18, 2020 requires businesses with up to 500 employees to provide additional paid leave to their employees. Many businesses understandably were concerned whether they could withstand the potential financial impact of the legislation, as well-intentioned as it may be. In theory, the law included a mechanism for financial relief by providing employers with a dollar-for-dollar tax credit to offset the money paid to employees in accordance with these requirements. But many questions loomed – including how quickly employers would be able to utilize these tax credits.
The Treasury, IRS, and Labor Departments now have issued a helpful explanation of the process for claiming these tax credits, with more guidance to be released imminently. Businesses will be pleased to know that they will be permitted to take these tax credits on a current basis by offsetting them against the regular payroll taxes that employers pay in each payroll. The notice explains:
“When employers pay their employees, they are required to withhold from their employees' paychecks federal income taxes and the employees' share of Social Security and Medicare taxes. The employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns (Form 941 series) with the IRS.
“Under guidance that will be released next week, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them 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.
“If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced next week.”
You can review the IRS’s full explanation of these provisions – including a potential Small Business Exemption for businesses with fewer than 50 employees -- at the following link: https://www.irs.gov/newsroom/treasury-irs-and-labor-announce-plan-to-implement-coronavirus-related-paid-leave-for-workers-and-tax-credits-for-small-and-midsize-businesses-to-swiftly-recover-the-cost-of-providing-coronavirus.
As always, if you have any questions, do not hesitate to contact Luchansky Law by email, or by calling 410.522.1020.