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COVID-19 Tax Updates and Implications

Tiffany L. Kuntemeier

March 23, 2020

Tax Implications Q&A

There is now a Postponement of Federal Income Tax and Income Tax Filing from April 15 to July 15, 2020; for those federal returns and payments originally due April 15.

IRS Filing and Payment Deadlines Q&A

  • Yes, this extends 2019 tax due and 2020 first quarter.
  • Yes, Corporations and trusts are included.
  • Yes, 709s, Gift and Generation Skipping Tax Filings, are included.
  • No, there is not a limit on how much tax can be postponed.
  • Yes, Missouri, Illinois, and California are also postponing all Income tax flings and payments until July 15, 2020.

Families First Coronavirus Response Act Q&A

updated March 27, 2020

On March 20th the Treasury, IRS and U.S. Department of Labor issued a joint notice on the Families First Coronavirus Response Act, which was enacted on March 18th.  Below are our current interpretations of the Act and information provided in the joint notice.  These interpretations are our best understandings at this time, and are subject to change upon the issuance of promised guidance from the DOL.

Q: What is the effective date for the Families First Coronavirus Response Act?

A: On March 27, 2020 the IRS issued Notice 2020-21 clarifying that tax credits for qualified sick leave wages and qualified family leave wages mandated by the Families First Coronavirus Response Act will apply to wages paid for the period beginning on April 1, 2020 through December 31, 2020.  This notice also provides that days occurring during the period beginning on April 1, 2020, and ending on December 31, 2020, will be taken into account for credits for qualified sick leave equivalent amounts and qualified family leave equivalent amounts for certain self-employed individuals.

Q: Do I have to start paying leave wages effective March 20, 2020 for eligible employees?

A: No. The U.S. Department of Labor will be issuing a temporary non-enforcement policy for the first 30 days after the effective date, from March 18, 2020-April 17, 2020, that provides a period for employers to come into compliance with the Act.  Under this policy, the Department will not bring enforcement action against the employer if the employer acted in good faith.

Q: What are qualified leave wages?

A: Qualified leave wages refer to mandatory wages paid for emergency paid sick leave and/or emergency paid family leave under the Family and Medical Leave Expansion Act, subject to thresholds, paid between April 1, 2020 and December 31, 2020.

Q: Do I still need to withhold the employee portion of payroll taxes for qualified leave wages that I pay to my employees?

A: Yes.  When employers pay their employees, they are still required to withhold from their employees’ paychecks federal income taxes and the employees’ share of Social Security and Medicare taxes. 

Q: Do I still need to remit the employer portion of payroll taxes for qualified leave wages?

A: No. Qualified leave wages are exempt from the employer portion of social security and Medicare withholdings. 

Q: How does the tax credit work?

A: The tax credit effectively reduces the amount of employment taxes that must be deposited to the IRS.  Employers are normally required to deposit amounts withheld from employees’ paychecks for federal, social security, and Medicare taxes in addition to the employers’ portion of social security and Medicare taxes.  Employers who pay qualified leave wages will retain the amount of the payroll taxes equal to the amount of qualified leave wages paid, rather than deposit them with the IRS.  If there are not enough payroll taxes to cover the cost of qualified leave wages paid, employers will be able to file a request for an accelerated payment from the IRS and not have to wait until filing a quarterly Form 941.  Details of the expedited procedure have not yet been released.

Q: How do employer paid health insurance premiums affect the credit?

A: Employer paid group health plan expenses are allowed as a credit against payroll taxes for qualified leave wages to the extent such premiums are excluded from the employee’s income and are properly allocated to the wages for which the credit is allowed.  Health plan expenses are properly allocated to qualified wages if made on a pro rata basis among covered employees and based on periods of coverage.

Q: How does the tax credit benefit me as an employer?

A: The tax credit effectively has a zero net cash effect to the employer who pays qualified leave wages.  Presumably, there will be a timing difference between the time the cash is paid for qualified leave wages and the credit offset or refund for qualified wages.

Q: Do I need to pay leave wages if my employees can telework?

A: No. If employees are able to work from home, qualified leave wages do not need to be paid.

Q: Are qualified leave wages retroactive?

A: No. Wages paid before April 1, 2020 are not considered qualified leave wages eligible for the tax credit.

Q: Is there a small business exception for paying mandatory qualified leave wages?

A: The DOL posted in a Q&A that small businesses with fewer than 50 employees may qualify for exemption from the requirement to provide leave due to school closings or child care unavailability if the leave requirements would jeopardize the viability of the business as a going concern.

Q: Can I pay leave wages to employees in excess of the thresholds?

A. Yes. However, for purposes of the credit and exemption of employers’ portion of payroll tax, the employer will only be allowed an offset up to the threshold amount.

To visit the DOL’s official Q&A, click here.

For Mueller Prost clients

For those of you that are still compiling information for us to complete your tax returns, we are open and working. You can send your information to us in the mail, drop it at our offices, or send it electronically. If you are interested in an electronic tax organizer with the ability to securely attach documents, please contact Amy Starostki (email: astarostki@muellerprost.com or call: (314) 480-1297). You can also contact your primary service provider to discuss other arrangements for pick-up.

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