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FGMK Tax Alert – COVID-19 Legislative Employment Tax Incentive Summary

Posted by : on : May 13, 2020 | 8:00 am

In response to COVID-19, the federal government has provided employment tax incentives. The first set of incentives consisted of the payroll tax credits for emergency paid sick leave and emergency family and medical expansion leave as provided under the Phase 2 legislation, the Families First Coronavirus Response Act (the “FFCRA”), as discussed in prior FGMK Alerts (HERE and HERE). These incentives are provided to offset the costs of required wage payments to employees who have to take leave due to COVID-19 and cannot telework. The second set of incentives includes the employee retention credit and deferral of the employer’s share of Social Security tax, which were provided by Phase 3 legislation, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and discussed in a prior FGMK Alert (HERE). The Internal Revenue Service has released FAQs that address common questions and issues presented by taxpayers regarding the FFCRA and CARES Act employment tax incentives (HERE). In addition, the Department of Labor has provided its own set of FAQs and information governing the FFCRA employment tax incentives (HERE).

 

Due to the abundance of information and interplay between these provisions, as well as the Paycheck Protection Program’s effect on taxpayer eligibility for such incentives, FGMK has prepared the following summary chart of the employment tax incentives provided by the FFCRA and CARES Act. It should be noted that Congress has begun discussions on Phase 4 legislation. A review of current drafts of proposed legislation reveals that Congressional leaders may consider modifications to existing employment tax incentives (likely expansion of these programs). If future legislation modifies the existing programs, FGMK will provide updates and additional analysis. If you have any questions concerning these employment tax incentives, the Paycheck Protection Program, or other tax issues, please contact FGMK.

 

  Emergency Paid Sick Leave Emergency Family & Medical Leave Expansion Employee Retention Credit Deferral of Employer Share of Social Security Tax
Effective Dates

April 1, 2020 - December 31, 2020

April 1, 2020 - December 31, 2020

March 13, 2020 - December 31, 2020

March 27, 2020 - December 31, 2020

 
Tax Type of Benefit

Payroll Tax

(Employer share of Social Security tax)

Payroll Tax

(Employer share of Social Security tax)

Payroll Tax

(Employer share of Social Security tax)

Payroll Tax

(Employer share of Social Security tax)

 
Nature of Incentive

Tax Credit

(Refundable)

Tax Credit

(Refundable)

Tax Credit

(Refundable)

Tax Deferral

(Creates Liability on Balance Sheet)

 
Paycheck Program Interplay

If credit claimed for required payments, then cannot claim wage expenses as "payroll costs" under PPP.

If credit claimed for required payments, then cannot claim wage expenses as "payroll costs" under PPP.

If PPP loan obtained, then cannot claim credit
(NOTE: If obtained PPP but returned loan by SBA safe harbor date, then may claim credit).

May claim deferral until date that receive loan forgiveness decision from lender.

 
Employer Size

1 - 499 Employees

 

Includes full-time and part-time employees.

1 - 499 Employees

 

Includes full-time and part-time employees.

(1) If have 100 or fewer full-time equivalent
employees ("FTEs"), then all wages qualify if
employer qualifies.
OR
(2) If have more than 100 FTEs, then only wages paid
to those NOT performing services for employer
qualify

 

* Aggregation rules under IRC Section 52 and
Section 414 apply.

No requirement or limitation.

 
Self-Employed Eligible?

Yes

Yes

No

Yes

 
Employer Credit Eligibility

Employee takes leave for one of six reasons related to COVID-19:
(1) Self-quarantine due to government order
(shelter-in-place orders do not apply)
(2) Self-quarantine due to medical professional's
advice
(3) Experiences COVID-19 symptoms AND seek
medical diagnosis
(4) Need to care for family member or close
friend who is reliant for care due to reasons (1)-(3)
(5) Need to care for child whose school or daycare
is closed due to COVID-19 or professional
caretaker not available due to COVID-19
precautions
(6) Experiencing substantially similar condition
specified by Secretary of Health & Human Services.

Employee takes leave:To care for child whose school or daycare is closed due to COVID-19 or professional caretaker not available due to COVID-19 precautions (Emergency Paid Sick Leave Reason 5).

Employer must establish EITHER:


(1) Full or partial suspension of operations due to
government order limiting commerce, travel,
or group meetings due to COVID-19
OR
(2) Gross receipts for calendar quarter are LESS
than 50% of gross receipts in same calendar
quarter in 2019.

No requirement, as all employers, including self-employed, are eligible.

 
Employee Defined

Full-time and part-time.

(as of date of hire)

Full-time and part-time.

(employed at least 30 calendar days)

Full-time equivalents as defined by Section 4980H.

All

 
Maximum Credit

If Emergency Paid Sick Leave reason (1)-(3), then LESSER OF $5,110 OR hourly rate X 80 hours (Max $511/day X 10 days).

If Emergency Paid Sick Leave reason (4)-(6), then LESSER OF $2,000 OR 2/3 hourly rate X 80 hours (Max $200/day X 10 days).

LESSER OF $200/day OR 2/3 hourly rate X hours expected to work.

This credit lasts for 10 weeks, and thus has maximum benefit of $10,000. 

(NOTE: First 10 days or $2,000 covered by Emergency Paid Sick Leave)

$5,000 per employee (credit based on 50% of qualified wages, up to a maximum qualified wage amount of $10,000 per employee).

N/A

 
Health Expenses Inclusion

Health plan expenses allocable to qualified wages increase amount of credit (if excluded from employee's gross income).

Health plan expenses allocable to qualified wages increase amount of credit (if excluded from employee's gross income).

Health plan expenses allocable to qualified wages increase amount of credit (if excluded from employee's gross income).

 

If employer covers health care costs of furloughed employee, such costs qualify for credit despite no other wage payment to furloughed employee.

N/A

 
Additional Considerations

(1) Qualified wages not considered wages for
employer's Social Security tax computation.

(2) Amount of Medicare tax owed due to
qualified wages increases amount of credit.

(3) May not claim IRC Section 45S Family Medical
Leave Credit for same wages.

(1) Qualified wages not considered wages for
employer's Social Security tax computation.

(2) Amount of Medicare tax owed due to
qualified wages increases amount of credit.

(3) May not claim IRC Section 45S Family Medical
Leave Credit for same wages.

(1) May not claim IRC Section 45S Family Medical
Leave Credit for same wages.

(2) May not claim an employee's wages for
credit during period, if such employee's wages
are claimed for WOTC in same period.

(3) May not claim an employee's wages if receive
a credit for payment of such wages under
the emergency paid sick leave or expanded
FMLA provisions.

N/A

 
How to Claim Incentive

Rather than waiting under calendar quarter-end to claim credit on Form 941, may decrease periodic payroll deposit or draw from deposit account based on amount of credit. If credit exceeds current deposit amount, may file IRS Form 7200 to claim advanced refund.

Rather than waiting under calendar quarter-end to claim credit on Form 941, may decrease periodic payroll deposit or draw from deposit account based on amount of credit. If credit exceeds current deposit amount, may file IRS Form 7200 to claim advanced refund.

Rather than waiting under calendar quarter-end to claim credit on Form 941, may decrease periodic payroll deposit or draw from deposit account based on amount of credit. If credit exceeds current deposit amount, may file IRS Form 7200 to claim advanced refund.

Inform payroll provider that wish to defer tax payments.

 
Impact on Income Tax Return

Gross income of employer increased by amount of credit.

Gross income of employer increased by amount of credit.

Reduce income tax deduction for wages paid by amount of credit, similar to  Section 280C(a).

N/A

 

 

 

The summary information in this document is being provided for education purposes only. Recipients may not rely  on this summary other than for the purpose intended, and the contents should not be construed as accounting, tax, investment, or legal advice. We encourage any recipients to contact the authors for any inquiries regarding the contents. FGMK (and its related entities and partners) shall not be responsible for any loss incurred by any person that relies on this publication.

 

Section references herein are to the Internal Revenue Code of 1986 and the Treasury Regulations thereunder.

 

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