Tax Credits for Employers Due to the COVID-19 CRISIS
Vol. 31 - June 2020 | ©2020 by Vidal, Nieves & Bauzá, LLC. All rights reserved.
BIn our News & Alert of April 3, 2020 we discussed the Employee Retention Tax Credit (“ERTC”) contemplated under the “Coronavirus Aid, Relief and Economic Security” commonly referred to as the CARES Act. In this edition we will discuss a tax credit available also for employers during the COVID-19 emergency enacted in the “Family First Coronavirus Response Act” (“FFCRA”) and some of the differences between these two (2) credits.
Purpose of the Tax benefits
The FFCRA was enacted to assist certain employers to provide employees with paid sick leave and expanded family, and medical leave for reasons related to COVID-19. The FFCRA requires certain businesses with fewer than 500 employees (small to mid-size business) to pay sick and family leave wages to employees who are unable to work or telework due to certain circumstances related to COVID-19. There are exceptions to the FFCRA leave requirements which may cover certain employers, including employers having 50 employees or less.
The CARES Act was enacted to help all small businesses economically affected due to COVID-19. The purpose of act´s tax benefits is to encourage employers to retain their employee’s on their payroll during the economic emergency created by the pandemic in the United States and Puerto Rico.
Who can Benefit from the Tax Credits?
The FFCRA tax credit applies to certain employers with fewer than 500 employees who have made the leave payments required by the FFCRA.
The ERTC under the CARES Act is available to any employer, regardless of its size, whose business has been financially impacted by COVID-19. However, eligible businesses must meet either of the following conditions:
(1) The business operations have been fully or partially suspended due to government order; or
(2) The business has a 50% decrease in gross receipts when compared to the same quarter during 2019.
The tax credits under the FFCRA and CARES Act do not apply to employers that received a loan under the Paycheck Protection Program of the CARES Act. Furthermore, the same wages cannot generate credits under the FFCRA and CARES Act.
What is the Amount of the Tax Credit?
Under the FFCRA, eligible employers are entitled to receive a tax credit (that may be refundable) in the full amount of the qualified paid sick leave and expanded family, and medical leave for reasons related to COVID-19 which has been paid beginning on April 1, 2020, and ending on December 31, 2020.
Under the CARES Act, the eligible employers can benefit from a tax credit (that may be refundable) of 50% of the qualified wages paid to employees after March 12, 2020, and before January 1, 2021 up to $10,000 per employee. Thus, the maximum amount of credit per employee is $5,000.
How to apply for the Tax Credits?
The credits may be claimed by employers in their federal employment tax returns (e.g., Form 941PR, Employer's Quarterly Federal Tax Return) where the employer will report the eligible wages. The credit is taken against the employer's share of Social Security tax.
In order to accelerate the benefit of the credit, an eligible employer may apply the credit against the employer’s federal employment taxes due in any given quarter. This means that the eligible employer can reduce the amount of federal employment taxes it would otherwise be required to deposit for that quarter for all its employees before it is required to make the federal tax deposit.
When the amount of the credit exceeds the employer’s federal employment taxes, the employer may request a refund to the IRS using Form 7200 Advance Payment of Employer Credits Due to COVID-19.
Should your company have any questions or interest with respect to these employer tax credits, you may contact the attorneys at Vidal, Nieves & Bauzá, LLC, a corporate law firm with a special emphasis in energy and environmental matters, corporate, tax, transactional, real estate and insurance practices.