On March 31, 2020, the Internal Revenue Service (IRS) provided guidance as to how small and midsized employers may claim the tax credits under the Families First Coronavirus Response Act (FFCRA) as reimbursement for the cost of providing paid sick and family leave to their employees for leave related to COVID-19. Under the FFCRA, businesses with fewer than 500 employees (Eligible Employers) are required to grant employees: (1) up to 80 hours of paid sick leave for their own health needs or to care for others, and (2) up to an additional 10 weeks of paid family leave to care for a child whose school or place of care is closed (or child care provider is unavailable) due to COVID-19 precautions. The FFCRA covers the costs of this paid leave by providing small businesses with refundable tax credits. Certain self-employed individuals in similar circumstances are also entitled to credits.
Eligible Employers are entitled to receive a credit in the full amount of the qualified sick or family leave wages, plus allocable qualified health plan expenses and the employer’s share of Medicare tax imposed on those wages. The tax credit applies to paid leave from April 1 to December 31, 2020.
Eligible Employers that pay qualified leave wages will be able to retain an amount of all federal employment taxes equal to the amount of the qualified leave wages paid (plus the allocable qualified health plan expenses and the amount of the employer’s share of Medicare tax on those wages) rather than depositing them with the IRS. The federal employment taxes that are available for retention by Eligible Employers include: (1) federal income taxes withheld from employees, (2) the employees’ share of social security and Medicare taxes, and (3) the employer’s share of social security and Medicare taxes with respect to all employees.
If the federal employment taxes yet to be deposited are not sufficient to cover the Eligible Employer’s cost of qualified paid leave under the FFCRA, the employer will be able file a request for an advance payment from the IRS. The IRS expects to begin processing advance payment requests in April 2020.
Eligible Employers claiming the credits must retain records and documentation related to and supporting each employee’s leave to substantiate the claim for the credits. They must also retain the Forms 941 (Employer's Quarterly Federal Tax Return) and 7200 (Advance of Employer Credits Due to COVID-19), and any other applicable filings made to the IRS requesting the credit.
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