Recently Enacted Employment Tax Credits Under the CARES Act

Written by: Nick Sarinelli, CPA

With the Payroll Protection Program dominating the headlines, businesses may not be paying as much attention to some other provisions of the recently passed tax acts.  Here is a quick highlight of the employment tax credits recently enacted.

Families First Coronavirus Response Act

The Families First Coronavirus Response Act went into effect on April 1 and continues until December 31, 2020 for employers with less than 500 employees. There are two main provisions in the act:

  1. The first provision expands the Family Medical Leave Act and provides employees up to 10 weeks of paid Family Medical Leave (FML) if they can’t work because they must care for children whose schools or daycare facilities have closed due to COVID-19. Eligible employees can earn up to a maximum of $10,000 under this program.
  2. The second provision provides employees 80 hours of Paid Sick Leave (PSL) if they are unable to work for one of the following six COVID-19 related reasons:
    • they are subject to a governmental quarantine or isolation order
    • they have been advised by a doctor to self-quarantine
    • they are experiencing symptoms of COVID-19 and seeking a medical diagnosis
    • they are caring for a family member subject to a quarantine order or self-quarantine
    • they are caring for children if schools are closed or their caregiver is unavailable because of COVID-19
    • they are experiencing substantially similar conditions as specified by the Secretary of Health and Human Services

Other Considerations

  • Eligible employees can earn up to a maximum of between $2,000 and $5,110, depending on the reason for their leave.
  • There is an exemption for businesses with fewer than 50 employees if they can prove that providing the above leave benefits would risk them going out of business.
  • To help employers afford the new FML and PSL benefits, companies can seek reimbursement through payroll tax credits.  The tax credits mirror the benefits paid for a maximum credit of $10,000 for the FML and between $2,000 and $5,110 for the PSL, per eligible employee.  The application of these credits should be applied through your payroll providers.

CARES Act – Employee Retention Credit

Eligible employers can qualify for a refundable credit against the employer’s 6.2% portion of Social Security tax for wages paid to employees during the COVID-19 crisis. The credit is provided for 50% of eligible wages paid between March 13 and December 31, 2020, for up to a maximum of $10,000 in wages (maximum credit of $5,000 per employee).

The credit is available for businesses and non-profits (but not government entities) if they fall into one of two categories:

  1. The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter; or
  2. The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

Qualifying wages are based on the average number of a business’ employees in 2019.

  • Employers with less than 100 employees: If the employer had 100 or fewer employees on average in 2019, the credit is based on wages paid to all employees, regardless if they worked or not.
  • Employers with more than 100 employees: If the employer had more than 100 employees on average in 2019, then the credit is allowed only for wages paid to employees who did not work during the calendar quarter.

Other Considerations

  • Wages don’t include (1) wages taken into account for Families First credit discussed above, (2) wages taken into account for other credits like the family and medical leave credit or work opportunity credit.
  • Important:  The credit is not available to employers receiving the Payroll Protection Loan.

 

If you have any questions, please do not hesitate to contact me at (973) 298-8500.

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