Our businesses have all experienced some form of change during this extraordinary year of 2020 to date. There have been several COVID-19 related relief options for employers to take advantage of in order to help to minimize the negative economic effects of this pandemic in the way it effects their business and their employees. Many of these relief programs also come with a reporting requirement. We will see these reporting requirements and changes beginning with the second quarter payroll reporting. As a result, Form 941 for the quarter ended June 30, 2020 and due by July 31, 2020 will have a very different look so that it can accommodate the new credits and sick and family leave pay. This letter is to inform you of the issues that will need to be addressed whether you do your payroll yourself, through a payroll reporting service or if we here at HSC prepare it for you. Please familiarize yourself with these issues and if some of these items apply to you make sure that you incorporate them into your payroll filing or inform those that prepare the filings for you so that they can help you to take advantage of the relief that is available. If you have any questions on these issues, please contact your HSC professional.
- Delayed Payment of Employer Payroll Taxes
The CARES Act allows employers to defer the employer portion of OASDI (6.2% FICA) taxes from the period beginning on March 27, 2020 through December 31, 2020. To make use of this relief employers simply continue to make their regularly scheduled payroll tax deposits less the employer portion of FICA taxes. The deferred payroll taxes are due as follows:
- 50% of the deferred taxes are due December 31, 2021
- The remaining 50% is due December 31, 2022
If the deferred taxes are paid by the due dates all deposits will be treated as having been made timely. This applies to all payroll taxes that are due on or after March 27, 2020 so this could include a pay period beginning before March 27th but not paid until March 27, 2020.
This relief provision amounts to an interest free loan that employers can use for other critical expense payments during this time.
If you deferred the payment of any payroll taxes under this relief provision, please let us know as this is reported on the new Form 941 beginning with the second quarter.
- Employment Tax Credits
Employers that are subject to the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act can claim refundable credits against the Employer’s portion of the FICA taxes due. The credit is 100% of the qualified leave wages paid by the employer for that calendar quarter.
The credit for wages paid under the Emergency Paid Sick Leave Act is limited to:
$511 per day per employee ($5,110 in the aggregate) if the employee is out due to a governmental quarantine or isolation order, health care provider advise or experiencing symptoms of COVID-19.
$200 per day ($2,000 in the aggregate) if their absence is due to caring for an individual subject to quarantine or isolation orders, caring for a child if the child’s school or place of care has been closed or their child care provider is unavailable due to COVID precautions, or similar conditions specified by the Secretary of Health and Human Services.
The credit is allowed for up to 10 days and could span two quarters.
The credit for wages paid under the Emergency Family and Medical Leave Expansion Act is limited to:
$200 per day the employee ($10,000 maximum) is paid for qualified leave which under the expansion is only applicable if the child’s school or place of care has been closed or if the childcare provider is unavailable.
If the taxes are insufficient to cover the cost of the qualified leave paid, employers can file for an advance payment using new Form 7200, Advance Payment of Employer Tax Credits Due to COVID-19.
If you paid any of your employees under the new Emergency Paid Sick Leave or Emergency Family and Medical Leave Act please let us know so that we can properly report the wages paid in order to garner the eligible tax credits.
- Employee Retention Credit
A refundable tax credit against employment taxes equal to 50% of the qualified wages an eligible employer pays to employees between March 12, 2020 and January 1, 2021. Eligible employers can get immediate access to the credit by reducing the payroll tax deposits they are otherwise required to make and, should the amount of the credit exceed the payroll tax deposits, the employer may get an advance payment of the credit from the IRS using Form 7200.
The credit is available to employers who:
- Experience either a full or partial suspension of the operation of their business during any calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel or group meetings or
- a significant decline in gross receipts (less than 50% of its gross receipts for the same quarter in 2019 and ending when gross receipts exceed 80% of the gross receipts for the same quarter in 2019).
Qualified wages include certain health care costs and are up to $10,000 per employee. If the employer has 100 or fewer full-time employees, the wages are qualified regardless of whether or not its employees are providing services. If there are more than 100 full time employees, qualified wages are only those paid to employees not providing services due to suspended operations or due to the decline in gross receipts.
An employer’s ability to claim the Employee Retention Credit is impacted by other COVID-19 relief and credit provisions as follows:
- An employer that receives an SBA loan under the Paycheck Protection Program is not eligible for the Employee Retention Credit
- No double dipping – wages used for this credit cannot be used to garner a tax credit for paid sick and family leave under the Families First Coronavirus Response Act.
- Wages paid to an employee cannot be claimed for both the Work Opportunity Tax Credit and the Employee Retention Credit.
If you paid any wages that you believe would qualify for the Employee Retention Credit, please let us know so that we may properly report the wages and the credits that you may claim.
As you can see there are a multitude of issues to address with the coming second quarter payroll reporting. Please let us know if any of these issues affect you so that we may assist you in properly reporting these items on your second quarter filings. Additionally, please let us know what relief programs you may have applied for and/or received such as the Paycheck Protection Program (PPP), Florida Disaster Loan Program or one of the SBA based loan programs as some of these programs have interaction parameters with the payroll reporting. We are here to help you so if you have any questions please give us a call.