Congress passed a myriad of tax credits, deferments, loans, and forgivable loan payments in response to the COVID-19 pandemic. Employers struggling to navigate the different options should work closely with their lender, accountant, and legal counsel.
Qualified Sick and Family Leave Tax Credits
Wages paid for COVID-19 family and sick leave under the Families First Coronavirus Response Act (FFCRA) will be refunded to employers through a dollar-for-dollar credit against payroll taxes owed. If that amount exceeds the payroll tax obligation for any quarter, it should be reported on the employer’s quarterly Form 941 to receive reimbursement. Employers can claim an advance refund using Form 7200 to obtain an advance on an anticipated excess credit/refund, which should be processed within 2 weeks.
Qualified leave is available for qualifying sick leave (2 weeks) and expanded COVID-19 FMLA (up to 10 weeks) taken from 4/1-12/31/20. This is only available to employers with less than 500 employees.
This credit cannot be claimed in conjunction a PPP loan with forgiveness of payroll costs–meaning that the same set of wages covered by the FFCRA sick or family leave cannot be included in the PPP loan forgiveness wage calculation.
Employee Retention Credit
For wages paid from 3/12-12/31/20, employers can take a 50% refundable payroll tax credit on wages if the business is:
- Fully or partially suspended due to orders from an appropriate governmental authority due to COVID-19; or
- Has gross receipts, for at least one quarter, that are less than 50% of gross receipts for the same quarter in 2019; the period of significant decline in gross receipts is recognized until gross receipts for a quarter are greater than 80% of gross receipts for the same quarter in 2019.
A refundable credit of 50% of the employer’s share of social security taxes, on up to $10,000 of wages and health insurance premiums paid 3/12-12/31/20 can be claimed.
For employers with 100 or fewer full-time employees, the credit can be claimed, regardless of whether business is suspended. For employers with more than 100 full-time employees, the credit applies only to employees who are not working (on a paid furlough) due to COVID-19.
Note that any employee retention credits for Q1 2020 should be reported in Q2 with the Q2 2020 retention credits. This employee retention credit is not available to employers receiving a PPP loan. It can be claimed in conjunction with qualified sick and family leave credits and payroll tax deferral, but an employer may not double (or even triple) dip by claiming a credit for the same wages under the employee retention credit and FFCRA sick and family leave.
PPP Loan
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides for Paycheck Protection Program (PPP) loans, whereby 8 weeks of payroll costs can be forgiven. The loans can be used for payroll costs, rent, mortgage interest, and utilities. 75% of the loan must be used for payroll. The forgiveness amount is reduced for any decrease in headcount or a 25% decrease in salaries and wages for any employee who made less than $100,000 in 2019 (unless restored by June 30, 2020). Payroll costs in excess of $100,000 per year per employee are not eligible for forgiveness.
Use of this program disqualifies an employer for employee retention credits. An employer may not include FFCRA sick and family leave wages counted as a payroll tax credit in the PPP loan forgiveness calculation.
Deferral of Payment for Social Security Taxes
Employers can defer payment of social security tax payments due for 3/27-12/31/20 to 12/31/21 and 12/31/22, with 50% due on each date. All employers are eligible for this benefit, unless they take loan forgiveness under the PPP, in which case they can defer payroll taxes up to the point that the forgiveness is granted.