Tax Credits for Employers
Reimbursement for Required Paid Leave Benefits The bill provides refundable tax credits to help employers cover the cost of providing these new paid leave benefits. The credits apply against the employer portion of Social Security taxes due and are equal to 100% of the qualifying paid leave wages paid by the employer, up to certain limits. Tax Credits – Paid Sick Leave The sick leave credit is limited to $511 per day per employee if qualified sick leave was taken by the employee for his or her own medical or quarantine needs or $200 per day per employee if qualified sick leave was taken to provide care for others. In either case, the maximum number of days that may be taken into account in calculating the tax credit is 10 days per employee. There is an aggregate maximum cap of $5,110 for an employee leave and $2,000 when caring for a family member. In addition, the 10-day per employee cap applies across all quarters in 2020. Tax Credits – Paid FMLA Leave The paid family leave credit is limited to $200 per day per employee for COVID-19 leave taken to care for a family member. The credit is capped at 2/3 of the employee’s regular pay, with an aggregate cap of $10,000 per employee. Up to ten weeks of paid leave payments per employee may be counted toward the family paid leave tax credit. Tax Credits – Health Plan Coverage Both the paid FMLA leave and the emergency paid sick leave maximum credit amounts may be increased by any amount the employer pays for health insurance coverage for an employee while the employee is on leave. This means amounts paid by the employer for health insurance premiums stack on top of the $2,000, $5,110, or $10,000 maximums for sick time or paid family leave payments. This subsidy enhancement is obviously an effort to incentivize employers to maintain health plan coverage so that employees retain coverage during the leave period. Tax Credit Mechanism Employers pay their share of Social Security and Medicare taxes for all employees on IRS Form 941 each quarter. Employers also pay the employee’s share of Social Security and Medicare taxes that have been withheld from employee paychecks in this same manner. When sick leave and extended FMLA leave payments are made to employees, an employer may offset otherwise required Social Security and Medicare taxes (employer and employee taxes) by an amount equal to qualified leave payments. Insufficient Tax Credits for Reimbursement Some employers are paying out more in COVID-19-required leave payments than their payroll tax liability. For this case, the IRS has developed Form 7200, Advance Payment of Employer Credits Due to COVID-19 . Submission of this form to the IRS is the method by which employers may request an advance tax credit to offset required sick time and leave payments that exceed actual payroll taxes collected. Employers must retain records supporting each employee’s leave to substantiate the claim for receiving payment of the advance credit. The IRS expects to process these advance credits within two weeks under a new, expedited procedure.
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