President Trump signed the latest coronavirus aid package into law Wednesday evening to provide relief amidst the coronavirus pandemic. The new law modifies and expands on the bill passed by the House on March 14th. This comes after receiving guidance from the IRS yesterday on the tax payment delays. Below are highlights of the new provisions.

Families First Coronavirus Response Act

The Families First Coronavirus Response Act (the “Act”) provides broad relief through:

  • Expanded funding for several nutrition assistance programs
  • A 6.2% Medicaid FMAP increase for states
  • Funding for insurance coverage and coronavirus testing
  • Up to $1billion in emergency transfers to states for unemployment benefits
  • Paid leave benefits to employees
  • Tax credits for employers and self-employed taxpayers
  • FICA tax relief for employers

Following are summaries of key provisions that will affect employers and employees. These are generally applicable to businesses with less than 500 employees; however, some employers with less than 50 employees may be exempt. The effective date of the new rules is 15 days after enactment (April 2nd) and they continue through December 31, 2020.

Emergency Paid Sick Leave

For companies with less than 500 employees and public sector employers, they must provide up to 80 hours of emergency paid leave for full-time employees. Part-time employees are to receive benefits equal to the average hours worked in a two-week period. This provision is applicable regardless of the duration of employment. Eligibility and caps for the benefits are determined based on whether the leave is for their own health or related to the care for a family member.

Qualifying circumstances for employee health-related leave (benefit is the lesser of their regular pay or $511/day with a maximum of $5,110 per affected employee):

  • An employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis
  • An employee has been advised by a health care provider to self-quarantine
  • An employee is subject to a federal, state, or local quarantine or isolation order

Qualifying circumstances for leave related to the care of a family member (benefit is the lesser of 67% of their regular pay or $200/day with a maximum of $2,000 per affected employee):

  • An employee is caring for an individual who is subject to quarantine or self-quarantine as above
  • An employee is caring for his or her child if the school or place of care of the child has been closed, or the childcare provider is unavailable, due to COVID-19 precautions

This paid leave is in addition to existing PTO, vacation or other paid leave. Employers cannot require employees to use any existing paid leave first. The Department of Labor has the authority to promulgate rules that allow employers of health care providers and emergency responders to opt-out of the paid sick leave mandate.

Emergency Family and Medical Leave Expansion Act

Employees eligible for emergency paid leave also may qualify for the new Emergency Family and Medical Leave Expansion Act. FMLA provides up to 12 weeks of job-protected leave. Under the new rules, the first 10 days are still unpaid, although a worker could use other accrued leave; however, after the 10-day period, employers would be required to pay employees two-thirds of their wages, not to exceed $200/day and $10,000 in aggregate. For part-time employees, the benefits will be based on the average hours worked during the six months prior to Emergency FMLA leave.

Employees are eligible for the FMLA expansion benefits if the employee is unable to work because:

  • They are required to care for their child under age 18;
  • Child’s school or place of care has been closed;
  • Childcare provider is unavailable due to a public health emergency with respect to COVID-19, declared by a federal, state, or local authority.

This provision also applies to employees of companies with less than 50 employees that are not otherwise required to offer FMLA benefits and lowers the threshold for an eligible employee to a worker who has been employed by the employer for 30 days. The Department of Labor has the authority to issue regulations exempting businesses with fewer than 50 employees from the expanded paid FMLA requirements when the imposition of such requirements would jeopardize the viability of the business as a going concern. Prudence dictates that small businesses do not rely on this language or assume that they’ll be exempt prior to the issuance of any definitive guidance

Inapplicability of FICA and Medicare Taxes

Any wages paid by reason of the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act are NOT subject to FICA or Medicare tax.

Tax Credits

The bill currently provides refundable tax credits to employers equal to the mandated benefits to compensate employers for payments made to affected employees. The credit is applied against the employer’s share of FICA and Medicare tax liability for the quarter in which the sick leave pay is paid. If the total sick leave payments made by the employer exceed its share of such taxes, the difference is refundable.

The specific timing of when an employer can reduce payroll tax deposits to take advantage of this credit is uncertain at this time.

Like employee benefits, self-employed taxpayers are allowed a credit against self-employment tax; however, the credit is subject to the daily limit of 67% of average daily self-employment income or $200. The bill requires self-employed individuals to maintain documentation to establish self-employment eligibility as prescribed by the Secretary of the Treasury.

Beyond the wage limits set out in the bill, both the paid sick leave and family leave credits would be increased to include amounts employers pay for the employee’s health plan coverage while they are on leave.  However, employers will have to include credits received in their gross income for income tax purposes.

Employers will need to work closely with their payroll service to ensure compliance with these provisions as well as to ensure they are receiving the full credit due.

Tax Payment Extension

Following up on our article yesterday related to the 90-day extension for certain tax payments until July 15, the IRS has issued a notice providing more specific guidance on the payment relief mentioned by Secretary Mnuchin. Below are highlights from the IRS release.

  • Relief is granted for the payment of any income tax otherwise due April 15, 2020, with respect to a taxpayer’s 2019 taxable year and estimates related to a taxpayer’s 2020 taxable year. No extension is granted for the payment of any other Federal tax.
  • No automatic extension is granted for the filing of any tax return or information return. The filing date for returns due on April 15 remains unchanged.
  • For Corporations, the postponed payment amount is up to $10,000,000 for each consolidated group or for each C Corporation that does not join in a consolidated return.
  • For all other taxpayers including individuals and trusts, the postponed amount is $1,000,000 regardless of filing status. That means that the amount is the same for a single individual as for married individuals filing a joint return. It also applies to payments of tax on self-employment income.
  • The maximum postponed amounts are in aggregate and include the total that may be deferred from the balance due for 2019 taxes and amounts related to 1st quarter estimated payments. Quarterly estimates due after April 15, 2020, are not included in this provision.
  • No penalties, interest, or addition to tax for failure to pay will be calculated on the postponement amounts for the period April 15 – July 15, 2020. Any interest or penalties will begin to accrue on such amounts beginning July 16, 2020. For tax payments due in excess of the postponement amounts, interest and penalties will accrue without deferral.

Some states have rolled out their own filing delays due to coronavirus, but every state is different. There is no official guidance for Ohio yet. The American Institute of CPAs is accumulating states’ tax filing guidance on their website and updating as they are informed.

If you have questions on how this impacts your specific tax situation, please contact your BMF advisor or any member of our tax team.

 

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About the Authors

Theodore A. Wagner

CPA, CVA
Cleveland Managing Partner, Taxation Services

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