Payroll Considerations of COVID-19 Legislation

In the past couple weeks, two pieces of legislation have impacted payroll by introducing potential tax credits and extending employee leave for those impacted by COVID‐19. Please note, every business has a different fact pattern, and some payroll provisions have an impact on eligibility for the Paycheck Protection Program and its related debt forgiveness potential.

FAMILIES FIRST CORONAVIRUS RESPONSE ACT (FFCRA)  

The first piece of legislation, the Families First Coronavirus Response Act (FFCRA), was signed by President Trump on March 18, 2020. There are two main provisions noted below, each effective April 1, 2020 through December 31, 2020. Employers with less than 500 employees are subject to its requirements, while employers with less than 50 employees may qualify for an exemption (see DOL Q&A for further guidance). 

EMERGENCY FMLA LEAVE  

• Extends coverage under the Family and Medical Leave Act to employees unable to work because of need to care for child under 18 years whose school or care facility is closed due to COVID‐19.
• Employee must have been employed for 30 days to qualify.
• Employee benefit is 2/3 of normal pay not to exceed $200/day and $10,000 in aggregate.
• Employer may qualify for a payroll tax credit for the qualified leave wages, any qualified health plan expenses (employee pretax portion and employer portion) allocable to the qualified leave wages and the employer’s share of Medicare taxes (1.45%) on the qualified leave wages.
• Employee can receive up to 12 weeks of leave; the first two weeks are unpaid; however, PTO or paid sick leave can be used during this time, but the employer cannot mandate their use.
• Leave payments are subject to employee FICA, income tax withholding, Medicare taxes and employer Medicare taxes; they are exempt from employer 6.2% FICA taxes.
• Employers may be eligible to file Form 7200 for advance payment of employer tax credits OR may be eligible to retain the federal employment tax that would otherwise be deposited, including federal income tax withheld, and both the employee’s and employer’s share of social security and Medicare taxes.

EMERGENCY PAID SICK LEAVE  

• Provides coverage for employee unable to work because of direct or indirect effects of COVID‐19, including being subject to quarantine, self‐quarantine, or caring for child(ren) under age 18 years.
• There is no minimum employment period to qualify.
• Full‐time employees receive 80 hours maximum, while part‐time employees receive the number of hours normally worked in a two‐week period.
• Employer may qualify for a payroll tax credit for the qualified sick leave wages and the employer’s share of Medicare taxes (1.45%) on the qualified sick leave wages.
• An employer is not required to pay more than $511 per day or $5,110 in aggregate per employee personally affected by COVID‐19 or $200 per day or $2,000 in aggregate per employee with family members affected. The employer may receive a tax credit up to these amounts.
• Paid sick leave payments are subject to employee FICA, income tax withholding, Medicare taxes and employer Medicare taxes; they are exempt from an employer’s 6.2% FICA taxes.
• Employers may be eligible to file Form 7200 for advance payment of employer tax credits OR may be eligible to retain the federal employment tax that would otherwise be deposited, including federal income tax withheld, and both the employee’s and employer’s share of social security and Medicare taxes.

CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY (CARES) ACT

The second piece of legislation, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, was signed by President Trump on March 27, 2020. There are three important provisions relating to payroll.

TEMPORARY PANDEMIC UNEMPLOYMENT ASSISTANCE PROGRAM  

• Expands unemployment insurance to those typically not covered, including self‐employed, independent contractors, and employees with limited work history.
• Provides up to $600 per week in addition to state unemployment benefits.
• Provides an additional 13 weeks of coverage to 39 weeks total, up from 26 weeks.
• States may waive the first week waiting period for benefits; Nebraska and Iowa have waived this
  requirement.  

EMPLOYEE RETENTION CREDIT  

• Not available for employers that participate in the Paycheck Protection Program (PPP) loan.
• Applies to wages March 13, 2020 through December 31, 2020.
• Qualified wages are reduced by employer payments made for Emergency FMLA Leave and Emergency Paid Sick Leave.
• Qualified employers include those:
  • Who have been fully or partially suspended due to order from a government authority OR
  • Have a greater than 50 percent decrease in gross receipts compared to the same calendar quarter in the prior year.
• For employers with less than 100 average employees as defined in Sec. 4980H, qualified wages include wages paid during a time of shutdown or decline in business.
• For employers with more than 100 average employees as defined in Sec. 4980H, qualified wages generally include wages to employees who are not currently providing services or working.
• The employer credit is 50 percent of qualified wages paid not to exceed $10,000 of wages per employee. Thus, the maximum credit is $5,000 per employee for the effective period.
• Employers may be eligible to file Form 7200 for advance payment of employer tax credits OR may be eligible to retain the federal employment tax that would otherwise be deposited, including federal income tax withheld, and both the employee’s and employer’s share of social security and Medicare taxes.

DELAY OF EMPLOYER PAYROLL TAXES  

1. All employers may defer the deposit and payment of the employer's share of social security tax, except as noted in 2.
2. Employers that receive a Paycheck Protection Program Loan (PPP), may not defer the deposit and payment of the employer's share of social security tax due on or after the date that the employer receives a decision from its lender that the PPP loan is forgiven. The amounts deferred during the eligible period before forgiveness are due according to the schedule below.
3. Applicable taxes are ONLY employer FICA taxes (6.2%) and are deferred to the following dates:
   • 50% until December 31, 2021 AND
   • 50% until December 31, 2022.

Helpful Links & Frequently Asked Questions (FAQ):
Department of Labor – COVID‐19 and the American Workplace
Internal Revenue Service – Related Tax Credits Provided by Small and Midsize Businesses

IRS GUIDELINES FOR CLAIMING PAYROLL TAX CREDITS

The Internal Revenue Service (IRS) has released additional guidance for employers who receive payroll tax credits under the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Failure‐to‐deposit penalties WAIVED during pandemic

The IRS is providing employers temporary relief from failure‐to deposit penalties imposed by Section 6656 of the Internal Revenue Code if:
(1) an employer pays qualified leave wages or qualified retention wages in the calendar quarter before the required deposit;
(2) the amount of federal employment taxes the employer does not timely deposit is less than or equal to the employer’s anticipated credits for qualified leave wages; and
(3) the employer did not seek advance payment of the credit by filing Form 7200 for the same wages.

Form 7200

Form 7200, Advance Payment of Employer Credits Due to COVID‐19, has been released and is available for wages beginning April 1, 2020. This can be filed by employers that report wages on quarterly Form(s) 941, 943, or 944 and qualify for any of the following payroll tax credits: Emergency FMLA Leave Credit, Emergency Paid Sick Leave Credit, or Employee Retention Credit.
Although self‐employed individuals may qualify for credits, they may NOT file Form 7200 to receive them.
Employment taxes that are available for the credits include withheld federal income tax, and both the employee and employer share of social security and Medicare taxes with respect to all employees.
When should an employer file Form 7200? See below for two examples.

Example 1

An employer is entitled to a credit of $5,000 for qualified paid sick leave and its normal payroll tax deposit would be $8,000. The employer can reduce its payroll tax deposit immediately by $5,000 and only remit $3,000. No Form 7200 is needed since the credit has been claimed in full.

Example 2

An employer is entitled to a credit of $10,000 for qualified paid sick leave and its normal payroll tax deposit would be $8,000. The employer can reduce its payroll tax deposit immediately by $8,000 and not remit any payment. Form 7200 can then be filed to claim the additional $2,000 credit, resulting in faster access to the funds versus waiting to file the related employment tax return.

Updated 4/15/2020 at 3:30 PM