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COVID-19: Relevant Tax Information

Information relating to COVID-19 is moving at a very fast pace - changing daily, if not hourly.

Here are some links you can check for more up-to-date information as things change:

IRS Coronavirus Updates: https://www.irs.gov/coronavirus
State of Ohio link: https://coronavirus.ohio.gov/wps/portal/gov/covid-19/

As of March 20, 2020, here is a summary of some of the relevant tax issues relating to the coronavirus (COVID-19):

Payment and Filing Deadline

Federal income tax filing and payments that were due without extension on April 15, 2020 have been automatically extended to July 15, 2020. (Notice 2020-17, IRB 2020-15)

The IRS has provided an extensive Q&A addressing filing and payment issues - see https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers

Tax Court

The United States Tax Court has canceled its March and April 2020 court calendars and has issued two press releases dealing with COVID-19 issues (see https://www.ustaxcourt.gov/). Please be advised, that the Tax Court is still processing mail and court petitions. Any deadlines associated with filing a Tax Court Petition have not yet been modified. None of the court calendars scheduled for March and April were in Ohio.

Families First Coronavirus Response Act

President Trump signed the Families First Coronavirus Act (HR 6201, the "Act") to address economic consequences relating to COVID-19 and the attempts to curb the outbreak by providing leave (family/medical/sick) to employees and providing employers with certain tax credits associated with providing the leave. Here are some details:

  • Family and Medical Leave. The Act includes the Emergency Family and Medical Leave Expansion Act (EFMLEA), requiring employers with fewer than 500 employees to provide both paid and unpaid public health emergency leave to certain employees through December 31, 2020. Emergency leave is generally available for any employee who has been employed for at least 30 days and is unable to work (including working remotely) due to a need for leave to care for a child (under age 18) because a school/daycare has closed, or a childcare provider is unavailable, due to a response to any order or recommendation declared by a federal, state, or local authority based on COVID-19. The first ten days of leave may be unpaid. Thereafter, paid leave is required and is calculated based on an amount not less than two-thirds of the employee's regular rate of pay and the number of hours the employee would otherwise be normally scheduled to work, not to exceed $200 per day and $10,000 in the aggregate. Certain exemptions and special rules apply, and a tax credit may be available (see below).
  • Emergency Paid Sick Time. Under the Emergency Paid Sick Leave Act (EPSLA) (Division E of the Act), private employers with fewer than 500 employees, and public employers of any size, must provide 80 hours of paid sick time to full-time employees who are unable to work (including working remotely) for specified COVID-19 related reasons. Part-time employees are entitled to sick time based on their average hours worked over a two-week period. This amount is immediately available regardless of the employee's length of employment. The maximum amounts payable vary based on the reason for absence. Employees who are (1) subject to a quarantine or isolation order, (2) advised by a health provider to self-quarantine, or (3) experiencing symptoms and seeking diagnosis, must be compensated at their regular rate, up to a maximum of $511 per day ($5,110 total). Employees caring for an individual described in category (1), (2), or (3), caring for a child whose school is closed or child care provider is unavailable, or experiencing a "substantially similar condition" specified by the government must receive two-thirds of their regular rate, up to a maximum of $200 per day ($2,000 total). Employers cannot require employees to find a replacement worker or use other sick leave before this sick time. Employers may exclude health care providers and emergency responders, and the DOL can issue regulations exempting businesses with fewer than 50 employees. The sick leave mandate takes effect not later than 15 days after March 18, 2020 (the date of the Act's enactment) and expires December 31, 2020.
  • Employer Tax Credits. The Act provides tax credits to employers to cover wages paid to employees while they are taking time off under the EPSLA and EMFLEA. (Act Sec. 7001; Act Sec. 7003) The credits have three components:
  1. (a) The EPSLA credit for each employee is equal to the lesser of the amount of his leave pay or either (1) $511 per day while the employee is receiving paid sick leave to care for themselves, or (2) $200 if the sick leave is to care for a family member or child whose school is closed. An additional limit applies to the number of days per employee: the excess of 10 days over the aggregate number of days taken into account for all preceding calendar quarters. (Act Sec. 7001(b))
    (b) The EFMLEA credit for each employee is the amount of his leave pay limited to $200 per day with a maximum of $10,000. (Act Sec. 7003(b)(1)) 
  2. The amount of the EPSLA and EFMLEA credits are increased by the portion of the employer's "qualified health plan expenses" that are properly allocable to qualified sick leave wages or qualified family and medical leave wages. Qualified health plan expenses means amounts paid or incurred by the employer to provide and maintain a group health plan (as defined in Code Sec. 5000(b)(1)), but only to the extent that such amounts are excluded from the gross income of employees by reason of Code Sec. 106(a). (Act Sec. 7001(d); Act Sec. 7003(d)) 
  3. In addition, the credits allowed to employers for wages paid under the EPSLA and EFMLEA are increased by the amount of the tax imposed by Code Sec. 3111(b) (the 1.45% hospital insurance portion of FICA) on qualified sick leave wages, or qualified family leave wages, for which credit is allowed under Act Sec. 7001 or Act Sec. 7003. (Act Sec. 7005(b))
The credits are refundable to the extent they exceed the employer's payroll tax. (Act Sec. 7001(b)(4); Act Sec. 7003(b)(3))

Employers don't receive the credit if they're also receiving the credit for paid family and medical leave in Code Sec. 45S. (Act Sec. 7001(e); Act Sec. 7003(e))

The EPSLA and EFMLEA credits may also be taken against the employer's railroad retirement tax. (Act Sec. 7001(a); Act Sec. 7003(a))

These rules apply only to wages paid with respect to the period beginning on a date selected by the Secretary of the Treasury which is during the 15-day period beginning on the date of the enactment of the Act (March 18, 2020), and ending on December 31, 2020. (Act Sec. 7001(g); Act Sec. 7003(g))

So how quickly will an employer receive credit or payment if the credits exceed actual payroll tax due? Under guidance that will be released next week, eligible employers who pay qualifying sick or child care leave will be able 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.

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.

If there are not sufficient payroll taxes 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. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced next week.​ More information is available at:

https://www.irs.gov/newsroom/treasury-irs-and-labor-announce-plan-to-implement-coronavirus-related-paid-leave-for-workers-and-tax-credits-for-small-and-midsize-businesses-to-swiftly-recover-the-cost-of-providing-coronavirus

  • Comparable Credits for Self-Employed. The Act also provides for similar refundable credits against the self-employment tax. It covers 100% of a self-employed individual's sick-leave equivalent amount, or 67% of the individual's sick-leave equivalent amount if they are taking care of a sick family member, or taking care of a child following the child's school closing for up to ten days. The sick-leave equivalent amount is the lesser of average daily self-employment income or either (1) $511/day to care for the self-employed individual or (2) $200/day to care for a sick family member or child following a school closing, paid under the EPSLA. (Act Sec. 7002)

    Self-employed individuals can also receive a credit for as many as 50 days multiplied by the lesser of $200 or 67% of their average self-employment income paid under the EMFLEA. (Act Sec. 7004)

    These rules apply only to days occurring during the period beginning on a date selected by the Secretary of the Treasury, which is during the 15-day period beginning on the date of the enactment of this Act (March 18, 2020), and ending on December 31, 2020. (Act Sec. 7002 and Act Sec. 7004) 

  • Employer FICA Exclusion. Wages paid under the EPSLA and EFMFLEA are not considered wages under Code Sec. 3111(a) (employer tax - old age, survivors and disability insurance portion of FICA; 6.2%) or under Code Sec. 3221(a) (employer's railroad retirement tax). (Act Sec. 7005(a))
    • Employer Relief with Section 139 Deductions. Section 139 of the Internal Revenue Code allows employers to make "qualified disaster relief payments" to employees to assist the employees in managing certain disasters. The payments are tax-free to the employees, but fully deductible to the employer. Section 139 applies to any "federally declared disaster" as defined in § 165(i)(5)(A). Section 165, in turn, defines such a disaster as any disaster determined by the President to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. On March 13th, President Trump issued an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act in response to the ongoing COVID-19 pandemic.

      Qualifying payments to employees would need to relate to the COVID-19 pandemic, such as:

    1. Medical expenses of the employee that are not compensated for by insurance (for example, the employees' deductible and out-of-pocket expenses);

    2. The cost of over-the-counter medications and hand sanitizer;

    3. Funeral costs of an employee or a member of an employee's family;

    4. The costs associated with enabling an employee to work from home throughout the pandemic;

    5. The cost of an employee's child care family members that are not permitted to attend school throughout the pandemic.

    Finally, § 139 does not require that any formal plan or documentation to be maintained by the employer; however, if an employer utilizes § 139, it would be a good practice to document § 139 payments to the best extent possible.

     

    Disclaimer: The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail.

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