Employer Available Tax Credits
To help businesses cope with the coronavirus pandemic, three new tax credits are available: the qualified family leave credit and the qualified sick leave credit which are part of the Families First Coronavirus Response Act, and the employee retention credit which is part of the CARES Act.
Eligible wages for the retention credit under the CARES Act cannot include wages counted for purposes of the paid sick leave and paid family leave payroll tax credits.
Also, if an employer receives a covered paycheck protection program loan under Section 1102 of the CARES Act, the employer is not eligible to claim an employee retention credit.
Businesses can reduce the amount of federal employment taxes they deposit for that quarter by the amount of the qualified wages paid in that calendar quarter. The employer must account for the reduction in deposits on the Form 941, Employer’s Quarterly Federal Tax Return, for the quarter.
Business can also receive an advance payment of employer credit due to COVID-19 by filing Form 7200 with the IRS.
The qualified family leave credit requires employers with fewer than 500 employees to provide public health emergency leave under the Family and Medical Leave Act, when an employee is unable to work or telework due to a need for leave to care for a son or daughter under age 18 because the school or place of care has been closed, or the child care provider is unavailable, due to a public health emergency related to COVID-19. (Employers with fewer than 50 employees can be exempted from the requirement.) Subject to certain limitations, an employer receives a payroll tax credit equal to 100% of the qualified family leave wages paid by the employer.
The qualified paid sick leave credit requires employers with fewer than 500 employees to provide up to 80 hours of paid sick time through the end of this year if an employee is unable to work due to being quarantined or self-quarantined or having COVID-19 or because the employee is caring for someone who is quarantined or self-quarantined or has COVID-19 or if the employee is caring for children whose school has been closed because of COVID-19 precautions. (Employers with fewer than 50 employees can be exempted from the requirement.) Subject to certain limitations, an employer can receive a payroll tax credit equal to 100% of the qualified sick leave wages paid by the employer.
The employee retention credit is available to all employers regardless of size, including tax-exempt organizations, but not to state and local governments and their instrumentalities and small businesses that take small business loans.
Qualifying employers must fall into one of two categories:
- The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter; or
- The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, the employer no longer qualifies after the end of that quarter.
These measures are calculated each calendar quarter.
The amount of the credit is 50% of qualifying wages paid up to $10,000 in total. Wages paid after March 12, 2020, and before Jan. 1, 2021, are eligible for the credit. Wages also include a portion of the cost of employer-provided health care.