• Brian Senjem

TAX CREDIT FOR PAID LEAVE WAGES and SMALL BUSINESS EXEMPTIONS

Updated: Mar 26

The IRS announced a refundable payroll tax credit to reimburse employers for the cost of providing Coronavirus-related leave to their employees and also provided more detail for

small businesses who may be exempt from the paid leave requirements.

REMINDER:

The new paid leave requirements, and associated tax credit, are effective April 1st, 2020.

TAX CREDIT

Overview of Federal 941 Taxes: When employers pay their employees, they are required to withhold from their employees' paychecks Federal Income tax and the employees' share of Social Security and Medicare taxes. The employers then are required to deposit these taxes along with their share of Social Security and Medicare taxes.  All of these taxes combined are referred to as Federal 941 taxes. Details of the Tax Credit: - Eligible employers who pay qualifying sick or child care leave under the Families First Coronavirus Response Act will be able to retain their Federal 941 taxes due, dollar-for-dollar, to offset the cost of the qualifying sick and child care leave that they paid.     * If there are not sufficient Federal 941 taxes to cover the cost of qualified paid leave, employers will be able to file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. Examples - If an eligible employer paid $5,000 in paid leave wages and is otherwise required to pay $8,000 in Federal 941 taxes, including taxes withheld from ALL its employees, the employer would only be required under the law to deposit the $3,000 balance on its regular deposit date (a few days after the pay date). If an eligible employer paid $10,000 in sick leave and was required to pay $8,000 in taxes, the employer could retain the entire $8,000 to cover its leave payments and file a request for an accelerated credit for the remaining $2,000. IMPORTANT NOTE: The IRS will be providing further guidance on exactly how a business can claim the credit and/or obtain a refund later this week.  Easytrack Payroll will send further information on this as soon as it is available. Small Business Exemption - Small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or child care unavailability where the requirements would jeopardize the ability of the business to continue. The exemption will be available on the basis of simple and clear criteria that make it available in circumstances involving jeopardy to the viability of an employer’s business as a going concern. IMPORTANT NOTE: The Department of Labor will provide emergency guidance and rule-making to clearly articulate this standard. Easytrack Payroll will send further information on this as soon as it is available. More Information - Full details (to date) from the IRS on the tax credit and small business exemption can be found here As a reminder, should you need the advice of an attorney during this time, our partner Julia Knearl is available to assist and answer questions.  Julia M Knearl, Esq (t) 303-448-8899 julia@juliaklaw.com

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