Most small businesses, 500 employees or less are familiar with the Coronavirus Aid, Relief, and Economic Security, “CARES” Act, P.L. 116-136, which included the Paycheck Protection Program, better known as the “PPP” loans. Almost all small businesses, and some not so small, were lathering at the mouth to get funded with these advantageous loans, PPP, that provide the potential for 100% forgiveness without incurring taxable income.
So, you already have a loan and do not believe you left money on the table from the CARES Act?
You might have!
Did you look at the less well known, but it will become far more well known, Families First Coronavirus Response Act, “FFCRA”? Let’s look at less know provisions, including a CARES Act provision and see how you can get more money in your business pocket and off of the table!
There are three credits that have not been receiving a lot of publicity:
- Employee Retention Credit
- Emergency Paid Sick Leave Act
- Medical Leave Expansion Act
The Employee Retention Credit is found within the Cares Act, Sec. 2301. This specific Credit allows an employer to receive a payroll tax credit for fifty percent, (50%), of wages paid to employees, with a maximum per employee of $10,000, when a business had to fully or partially close due to governmental orders due to COVID-19.(Remember State orders are “governmental” orders) Another way to qualify for this payroll tax credit is from a decline in gross revenues, compared to the prior year. This particular credit is based on a quarterly analysis and is further subdivided between the number of employees that a business had, either greater or less than 100 full time employees.
Businesses with 100 or less full-time employees in 2019, compute the credit calculation based upon the total of all qualified wages, which includes qualified health care expenses, paid to all employees during the quarter or quarters at issue. This amount is compared to the applicable period in 2020.
Note: there is no double or triple dipping. If an employer claims a credit under either of the above 2 remaining credits, namely the Emergency Paid Sick Leave Act or the Medical Leave Expansion Act, then an employer cannot also claim a tax credit for the retention credit. One more note of caution, if such business received a Small Business Interruption Loan they also are excluded from utilizing the Employee Retention Credit.
Let us move from the CARE’S act to the FFCRA credits. According to the IRS, Instructions for Form 7200, the following two credits may be claimed for wages paid on qualifying leave wages paid for the period between April 1, 2020, and December 31, 2020.
The Emergency Paid Sick Leave Act is found within the FFCRA Sec. 5102. The section at first glance may appear onerous as it “requires” employers to provide up to 80 hours of compensated sick leave per full time employee, and the employee is subject to a Federal, State, or local quarantine or isolation order related to COVID–19. or its effects, are unable to work There is a specific list of guidelines:
A. The employee is subject to quarantine or self-isolation
B. Is caring for an individual who is subject to quarantine or self-isolation.
C. An individual is experiencing substantially similar circumstance specified by the Secretary of Health and Human Services and is seeking a medical diagnosis
This specific paid sick leave is in addition to the Company policy on paid sick leave and not only may be used prior to other sick leave, but also includes part time employees! Would be an ouch, but remember that a credit is available, within limitations, from the federal government to fund this requirement in full, for each dollar paid. Also, the pay limitations are reduced if the Sick leave pay is at a reduced level or if the absence is due to caring for another who is ill, rather than the employee’s own sickness or isolation.
The Medical Leave Expansion Act is the third tool in the toolbox for additional tax relief for small employers. If an employee is unable work due to a public health emergency due to Covid and:
A. A child’s school being closed due to the coronavirus or
B. The child’s daycare is closed due to the coronavirus
If the Employee needs leave to take care of such child or children, then this section provides for up to ten weeks paid leave with a credit available for such payments to the employee or 66.23% of regular pay.
The design of these benefits is for the federal government to provide payroll tax credits to make a business whole, within payment limitations, through a payroll tax credit taken upon a businesses’ payroll tax forms, generally Form 941 or equivalent. (Form 941 PR for Puerto Rico). The amount of withheld taxes, FICA and Medicare may be retained by the business to equal the credit. However, many businesses may have to wait for a very long time to pay in a sufficient amount of payroll taxes to obtain such credit.
The government has provided a methodology to receive the payroll tax credit in advance by filing a Form to claim advance payroll tax refunds, Form 7200. Note self-employed persons are also entitled to such credit but do not use Form 7200 to claim it. It is not only the Wages or Paid Leave, that are reimbursable to the business, it is also the amount of qualified health care costs and the Employer’s share of Medicare tax as well.
What about FICA?
Ok, you think I missed the FICA tax right? Actually not, remember that only wages or remuneration for employment is covered by IRC Sec. 3121(a). As the above enumerated payments are NOT wages for FICA purposes, no FICA tax is due!
So, if you are not using all the above credits and any sick leave, employee leave or a reduction in business occurred, you may be leaving money on the table!
