Treasury, IRS and Labor Announce FFCRA Payroll Tax Credits

In Coronavirus, Taxes by Phyllis Ludwig

On March 18th H.R. 6201 – Families First Coronavirus Response Act (FFCRA) was signed into law offering emergency support and requiring paid leave for small business employees affected by coronavirus. The intent of the bill is to support employees who are unable to work for COVID-19 related reasons. While this creates a significant burden for small business employers the bill also includes tax credits to help offset the required payments to employees.

The U.S. Treasury Department, Internal Revenue Service, and the U.S. Department of Labor announced that affected employers can begin taking advantage of two new payroll tax credits as part of the FFCRA. These payroll tax credits are designed to immediately and fully reimburse employers for the cost of providing coronavirus-related leave to their employees.

The basics of the tax credits is that it allows eligible employers who pay qualifying sick or child care leave to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS. If the payroll taxes are not sufficient to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS.

We found the examples provided by the Treasury, IRS, and DOL to be most helpful:

Examples

If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments.  The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.

If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments, and file a request for an accelerated credit for the remaining $2,000.

Equivalent child care leave and sick leave 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.

To see the entire announcement, click the link here for the posting on the IRS website.

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