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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 31, 2020

“Qualified Leave Wages” – means required wages paid under the Family and Medical Leave Expansion Act and Emergency Paid Sick Leave Act, unless otherwise noted.

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

A: Yes. However, the employer is not required to pay qualified leave wages in excess of the threshold amounts.  For purposes of the credit and exemption of the employers’ portion of payroll tax, the amount available for offset or refund will be limited to the threshold amounts. 

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. IRS Form 7200 was issued in draft form on Tuesday 3/31/2020 to outline the application for advance payment of employer credits.

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. IRS Form 7200 was issued in draft form on Tuesday 3/31/2020 to outline the application for advance payment of employer credits.

Q: Do I need documentation from employees to receive tax credits for qualified leave wages?

A: An employer that intends to claim a tax credit under the FFCRA for its payment of the sick leave or expanded family and medical leave wages should retain appropriate documentation in its records. It should consult IRS applicable forms, instructions, and information for the procedures that must be followed to claim a tax credit, including any needed substantiation to be retained to support the credit. 

With respect to employees that take expanded family and medical leave to care for their child whose school or place of care is closed, or whose child care provider is unavailable, due to COVID-19, an employer may require the employees to provide it with any additional documentation in support of such leave, to the extent permitted under the certification rules for conventional Family Medical Leave Act (FMLA) leave requests. This could include a notice that has been posted on a government, school, or day care website, or an email from an employee or official of the school, place of care, or childcare provider. 

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: Can employees take paid sick leave or expanded family and medical leave intermittently while teleworking?

A: Yes, if allowed by the employer.  If an employee is unable to work their normal schedule while teleworking the employee can take intermittent leave, up to the thresholds, in any increment under expanded family and medical leave provisions.  Intermittent emergency paid sick leave must be taken in full-day increments, up to the thresholds.

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: Can an employer require an eligible employee to substitute other paid leave for mandated paid leave?

A: No. Only the employee may decide to use existing paid vacation, personal, medical, or sick leave in lieu of paid leave under FFCRA.  All paid leave requirements under FFCRA are in addition to paid leave policies.

Q: As an employer, how do I know if my business is under the 500-employee threshold and therefore must provide paid sick leave or expanded family and medical leave?

A: Employers should use the number of employees on the day the employee’s leave would start to determine whether the employer has fewer than 500 employees for purposes of providing expanded family and medical leave and paid sick leave.

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

A: A small business with fewer than 50 employees can be excluded from the requirement to provide leave due to school closings or childcare unavailability if the leave requirements would jeopardize the viability of the business as a going concern provided that an officer of the business has determined that at least one of the following apply:

  1. Providing qualified leave wages would result in the business’s expenses exceeding available business revenues and cause the business to cease operating at a minimal capacity;
  2. The absence of employees requesting qualified leave wages would entail a substantial risk to the financial health or operational capabilities of the business due to the employees specialized skills, knowledge, or responsibilities; or
  3. There are not enough workers who are able, willing, and qualified at the time and place needed to perform the labor or services for the employee requesting qualified leave and is needed to operate at minimal capacity.

Q: Are health care providers and emergency responders exempt from eligible employees for qualified leave wages?

A. Yes. Employees of healthcare providers who may be exempt from qualified leave wages include anyone who is employed at any doctor’s office, hospital, health care center, nursing facility, retirement facility, nursing home, home health care provider, pharmacy, and any of their contractors. 

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.

To visit our COVID-19 Resource Center, click here.

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