The COVID-Related Tax Relief Act of 2020 (the Act) amends The Families First Coronavirus Response Act (the FFCRA), which provides small and midsize employers with the ability to have costs of providing paid sick and expanded family and medical leave wages to employees as a result of COVID-19 reimbursed through refundable tax credits.
The Act extends (1) the credits provided by the FFCRA against the employer portion of OASDI and Railroad Retirement taxes for qualifying sick and expanded family and medical leave wages and (2) the equivalent FFCRA-provided credits for the self-employed against the self-employment tax. Under the extension of the employer and self-employed credits, wages considered are those paid from April 1, 2020 to April 1, 2021 (previously January 1, 2021).
The FFCRA provides businesses with fewer than 500 employees with the ability to fund paid sick and family leave for employees out of work due to COVID-19 related health needs, or to care for family members with COVID-19 related health needs. The benefit is available for up to 80 hours of paid sick leave and up to an additional 10 weeks of paid family leave to care for a child whose school or childcare provider is closed due to COVID-19. Qualified health plan expenses allocable to those payments are also included. The cost is covered through refundable tax credits. A refundable tax credit is also available for certain self-employed individual who find themselves in similar circumstances.
Eligible employers claim the tax credits on their federal employment tax returns (e.g. Form 941) for the applicable quarter for which paid sick leave or expanded family and medical leave was paid for reason related to COVID-19. To take advantage of the benefit more quickly, eligible employers can instead reduce their federal employment tax deposits. If an eligible employer doesn’t have enough federal employment taxes to cover the credits, it can request an advance payment by filing Form 7200.
The employer portion of the 1.45% Medicare tax paid on qualified leave wages is also eligible for the credit. The employer portion of the 6.2% social security tax, however, is not since qualified leave wages are not subject to the tax.
Contact the professionals at Gilliam Bell Moser LLP for additional information.