The Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security, or CARES Act, provide refundable tax credits to certain employers that continue to pay their employees during the COVID-19 pandemic. The Internal Revenue Service is also providing employers eligible for these credits with relief from the penalty for failing to timely deposit employment taxes.
Qualified Leave Wages Credits
The FFCRA established two refundable tax credits — the qualified sick leave wages credit and the qualified family leave wages credit — in an effort to provide “eligible employers” with the funds necessary to pay “qualified sick leave wages” and “qualified family leave wages” to their employees during the period April 1, 2020, to Dec. 31, 2020. The credits are allowed against the eligible employer’s portion of Social Security tax due on all wages paid during the period April 1, 2020, to Dec. 31, 2020. If the amount of the credit exceeds the employer’s Social Security tax liability, then the excess is treated as an overpayment and refunded to the employer.
For more than 15 years, Pamela has worked in both the public and private sectors, supporting clients and solving complex problems. She currently serves as FranklinCovey's thought leader on inclusion and bias as well as a Global Client Partner responsible for supporting some of the organization’s most strategic accounts. Her solutions-oriented and client-centric approach have resulted in unique solutions that exceed client expectations and achieve results. Pamela works with clients to match the right solution to organizational strategic priorities and is particularly adept at designing tailored, competency-based programs to solve her client's most pressing needs.
Through this work, Pamela has designed programs that have impacted hundreds of thousands of participants, including FranklinCovey’s Unconscious Bias: Understanding Bias to Unleash Potential solution. Pamela has delivered this content and facilitated strategy discussions related to diversity, equity, and inclusion to thousands of leaders across the globe.
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Prior to her current role, Pamela served as an EEO & Diversity Analyst and Trainer, where she conceived and implemented proactive diversity programs to include human capital planning, training on unconscious bias and microaggressions, and statistical workforce analysis. For nearly a decade, she also served the non-profit community, executing advocacy, communications, special events, and fundraising strategies.
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Lorna Sabbia is head of retirement and personal wealth solutions for Bank of America Merrill Lynch.
The president-elect's pledge to repeal President Donald Trump‘s tax cuts as soon as he is inaugurated may be stymied for the foreseeable future.
Eligible employers claim the qualified leave wages credits on Form 941, but they can benefit more quickly from the credits by reducing their federal employment tax deposits. In other words, eligible employers can retain federal employment taxes that they otherwise would have deposited in an amount up to the level of qualified leave wages credits for which they are entitled.
Eligible employers are businesses and tax-exempt organizations that have fewer than 500 employees, and are required under the FFCRA to pay qualified sick leave wages and qualified family leave wages. Qualified sick leave wages are wages an eligible employer is required to pay to an employee who is unable to work or telework because of either the employee’s personal health status as a result of COVID-19 or the employee’s need to care for others as a result of COVID-19. Qualified family leave wages are wages an eligible employer is required to pay to an employee who is unable to work or telework because the employee is caring for a child whose school or place of care is closed, or whose child care provider is unavailable, due to COVID-19.
The qualified sick leave wages credit is generally equal to the amount of qualified sick leave wages paid plus the amount of qualified health plan expenses allocable to the qualified sick leave wages paid plus the employer’s portion of Medicare tax due on the qualified sick leave wages paid. However, the maximum amount that can be treated as qualified sick leave wages paid to any one employee is limited, and the limit depends on why the employee receiving the wages is on sick leave. If the employee is on sick leave because of their own health status, the limit is $511 per day up to a total of $5,111. If the employee is on sick leave because they are caring for others, the limit is $200 per day up to a total of $2,000.
The qualified family leave wages credit is generally equal to the amount of qualified family leave wages paid plus the amount of qualified health plan expenses allocable to the qualified family leave wages paid plus the employer’s portion of Medicare tax due on the qualified family leave wages paid. However, the maximum amount that can be treated as qualified family leave wages paid to any one employee is limited to $200 per day up to a total of $10,000.
Employee Retention Credit
The CARES Act also established a refundable tax credit — the Employee Retention Credit — for “eligible employers” that pay “qualified wages” to their employees between March 13, 2020, and Dec. 31, 2020. The credit is equal to 50 percent of qualified wages paid, limited to a maximum credit of $5,000 per employee, and is allowed against the eligible employer’s portion of Social Security tax due on all wages paid during the period March 13, 2020, to Dec. 31, 2020. If the amount of the credit exceeds the employer’s Social Security tax liability, then the excess is treated as an overpayment and refunded to the employer.
Eligible employers claim the Employee Retention Credit on Form 941, but they can benefit more quickly from the credit by reducing their federal employment tax deposits. In other words, eligible employers can retain federal employment taxes that they otherwise would have deposited in an amount up to the amount of the Employee Retention Credit for which they are entitled.
Eligible employers generally are businesses and tax-exempt organizations that either:
- Fully or partially suspended operations during 2020 due to a “stay-at-home” order; or,
- Experience a significant decline in gross receipts during 2020
However, employers that receive a Paycheck Protection Program loan are not eligible employers and, thus, they may not claim the Employee Retention Credit.
Qualified wages are generally wages paid by an eligible employer to employees between March 13, 2020, and Dec. 31, 2020, and during the period the employer experienced either a full or partial suspension of operations due to a “stay-at-home” order; or a significant decline in gross receipts.
Relief from penalty for failure to deposit employment taxes
An employer’s failure to timely deposit federal employment taxes is generally subject to a penalty. However, the IRS recently announced in Notice 2020-22 that an employer that is eligible for the Qualified Leave Wages Credits and/or the Employee Retention Credit will not be subject to a penalty for failing to deposit employment taxes if:
- The amount of the employment taxes the employer fails to timely deposit is less than or equal to the amount of the employer’s anticipated Qualified Leave Wages Credits and/or the Employee Retention Credit; and
- The employer did not seek payment of an advanced credit by filing Form 7200, “Advanced Payment of Employer Credits Due to Covid-19.”
As a result, an employer may reduce, without penalty, the amount of a deposit of employment taxes by the following amounts paid in the calendar quarter prior to the required deposit:
- Qualified leave wages;
- Qualified health plan expenses allocable to qualified leave wages;
- The employer’s share of Medicare taxes paid on the qualified leave wages; and,
- Qualified retention wages.
