IRS and DOL Announce Plan for Claiming Coronavirus Payroll Tax Credits by Small and Midsize Employers
Author: Rena Pirsos, XpertHR Legal Editor
March 27, 2020
On Friday, March 20, the US Treasury Department, Internal Revenue Service (IRS), and the US Department of Labor (DOL) announced that small and midsize employers (i.e., those with fewer than 500 employees) will be able to begin claiming two new refundable payroll tax credits provided under the Families First Coronavirus Response Act (the Act) signed by President Trump on March 18. The credits are designed to immediately and fully reimburse these employers for the cost of providing COVID-19-related leave to their employees.
The IRS is planning to quickly release guidance allowing eligible employers that pay qualifying sick or child care leave to retain an amount of the payroll taxes equal to the amount of qualifying sick and childcare leave that they paid, rather than deposit that amount with the IRS. Eligible employers will be able to retain withheld federal income tax and the employee share of Social Security and Medicare (FICA) taxes, plus the employer share of FICA taxes for all employees.
If not enough payroll taxes are withheld to cover the cost of qualified sick and child care leave paid, the employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests "swiftly", in two weeks or less.
The announcement includes the following two examples of how this will work:
- If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.
- If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.
The IRS said in Notice 2020-21, that the refundable tax credits apply to paid qualified sick and family leave wages required by the Act for the period from April 1, 2020, to December 31, 2020.
The Act provides an exemption for small businesses - those with fewer than 50 employees - whose business continuity would be jeopardized due to providing workers with paid sick and/or family leave related to school closings or unavailability of child care. The DOL is expected to provide emergency guidance and rules providing the criteria that qualify small employers for the exemption.
In addition, the DOL is expected to issue guidance allowing for a temporary non-enforcement policy for employer violations of the Act occurring within the first 30 days after April 1, 2020. Under this policy, employers that act reasonably and in good faith to comply with the Act's requirements will not be subject to DOL enforcement actions. The DOL will instead focus on compliance assistance.
The DOL said that good faith, for purposes of this non-enforcement position, exists when:
- Violations are remedied and the employee is made whole as soon as practicable by the employer;
- The employer did not commit the violations willfully; and
- The DOL receives a written commitment from the employer to comply with the Act in the future.