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On March 20, 2020 the IRS announced that small and midsized employers can begin taking advantage of two new refundable payroll tax credits, designed to reimburse employers for the cost of providing Coronavirus related paid leave to their employees. The paid leave for employees and tax credits for businesses are provided under the Families First Coronavirus Response Act (“Act”), signed into law on March 18, 2020. The Act applies to employers with less that 500 employees. Under the Act employees receive up to 80 hours of paid sick leave and expanded child-care leave. However, businesses with less than 50 employees will be eligible for an exemption.

Available Tax Credits

Sick Leave Credit

For an employee who is unable to work because of Coronavirus quarantine or illness, the employer may receive a refundable tax credit for the employee’s regular wages paid, up to $511 per day and $5,110 in total, for a total of 10 days.

For an employee that is caring for someone with Coronavirus or caring for a child whose school or child care facility is closed, the employer may claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in total for up to 10 days.

Expanded Child Care Leave Credit

In addition to the sick leave credit, for an employee who is unable to work because of a need to care for child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus, an eligible employer can receive a Child Care Leave Credit. This credit is equal to two-thirds of the employee’s regular pay capped at $200 per day or $10,000 in total. The aggregate amount of this credit is larger and can be provides for up to 10 weeks of pay.

Method to Obtain the Credit

Payroll Tax Retention

Under IRS notice IR-2020-57, March 20, 2020, the IRS provided that employers who pay qualifying sick leave or child care leave will be able to retain an amount of payroll taxes equal to the amount of qualifying sick and child care leave paid, rather than depositing these taxes with the IRS.

The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.

Payroll Tax Refund

If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able to file a request for an accelerated refund from the IRS. The IRS expects to make these payments in two weeks or less.

Application to Self-Employed Individuals

Equivalent sick leave and childcare credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.

The IRS will provide additional guidance on obtaining the tax credit during the next week.

We are available to assist in evaluating other COVID-19 government  programs, such as the Economic Injury Disaster Loan Program offered by the Small Business Administration. If you have any questions regarding the application of these tax credits or the process for claiming these credits, please contact the following people at RVG & Company: Larry Rice, Joao Gomes and Paul Buchman