On December 21st, Congress passed a $900 billion COVID-relief package and $1.4 trillion government funding package which will provide financial assistance to Americans in addition to securing federal funding through September 2021. It includes:
- Extension of the CARES ACT employee retention tax credit (ERTC) from January 1, 2021 through June 30, 2021
- Increases the credit rate from 50% to 70% of qualified wages
- Reduces the required year-over-year gross receipts decline from 50% to 20% and allows employers to use prior quarter gross receipts for eligibility.
- Increased the limit of creditable wages from $10,000 for the year to $10,000 for each quarter.
WHO CAN USE THIS
This benefit will apply to photographic and other small businesses (fewer than 500 employees).
WHAT THIS BENEFIT DOES
Keeping a small business afloat during these unprecedented times is difficult enough. Paying for extended employee sick leave associated with Coronavirus could be enough to sink many photographers and other small businesses. If you have employees who have to be out for one of the reasons listed below, this benefit gives you a payroll tax credit as long as your employees are out for one of the following reasons:
- The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19
- The employee has been advised by a health care provider to self-quarantine related to COVID-19
- The employee is experiencing COVID-19 symptoms and is seeking a medical diagnosis
- The employee is caring for an individual subject to an order described in (1) or self-quarantine as described in (2)
- The employee is caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19
- The employee is experiencing any other substantially-similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury. A substantially-similar condition has not yet been identified, however, this allows for expansion in the future if genetic mutation occurs.
Although, this is not immediate money back in your pocket, you will see the benefits when you file your employer’s quarterly tax return (IRS Form 941). This is a one-to-one benefit, meaning your payroll tax will be reduced one dollar for every dollar in paid in employees leave covered by this legislation.Please note that this benefit does not apply to self-employed individuals.However, there is relief for that provided under section 7002.
The duration of the sick leave covered by this varies based on the situation:
- For reasons one through four, and six listed above, a full-time employee is eligible for 80 hours of leave, and a part-time employee is eligible for the number of hours of leave that the employee works on average over a two-week period.
- For reason five listed above, a full-time employee is eligible for up to 12 weeks of leave (two weeks of paid or unpaid sick leave depending if the employee elects to use paid sick time followed by up to 10 weeks of paid expanded family & medical leave) at 40 hours a week, and a part-time employee is eligible for leave for the number of hours that the employee is normally scheduled to work over that period.
CALCULATING THE PAY AN EMPLOYEE WOULD RECEIVE
- For leave reasons one through three above, employees taking leave are entitled to pay at either their regular rate or the applicable minimum wage, whichever is higher, up to $511 per day and $5,110 total (over a 2-week period).
- For leave reasons four or six above, employees taking leave are entitled to pay at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $2,000 total (over a 2-week period). The employee is also entitled to pay at the above rate for an additional 10 weeks after they have taken 10 days of paid sick leave (2-week period).
- For leave reason (5): employees taking leave are entitled to pay at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $12,000 in the aggregate (over a 12-week period).
See Department of Labor for further clarification.
HOW TO APPLY FOR THIS:
This credit is allowed against the OASDI (employer’s portion of Social Security taxes paid) and is claimed on the employer’s quarterly employment tax returns (IRS Form 941 line 2, 5c, 5d, 8. See Instructions Form 941). The legislation reads,
“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.”
BUT I NEED MONEY NOW TO PAY MY EMPLOYEES
Businesses can keep and use funds they would otherwise pay to the IRS in payroll taxes. If those amounts aren’t enough to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released in the future.
IMPORTANT THINGS TO NOTE
As an employer:
- If you do not seek an exemption through the Department of Labor, then you are subject to this law. Exemptions to employers with fewer than 50 employees are granted through the Department of Labor by showing the payment of sick leave would jeopardize your business. Form expected April 2020.
- You must pay your employee according to the qualifying reason for leave or risk being subject to legal action from the Department of Labor.
- If caring for a child whose school or place of care is closed, the first two weeks are unpaid but the employee may use vacation leave, paid time off, or sick leave to continue receiving a pay check.
- Coronavirus-related sick leave must be made available in addition to any other accrued sick leave provided. The employee may elect to have coronavirus-related sick leave apply before any other sick leave.
- The credit is able to be increased to cover the cost of an employee’s health insurance premium when you are required to pay for it.
- Covered family leave pay is exempt from employment taxes otherwise imposed.
As an employee:
- If you do not fall under “Employee Qualifying Reasons for Leave” then you are unable to receive the tax credit.
- After the first compensated sick day, the employer may require you to follow reasonable notice procedures to continue receiving sick pay.
- Intermittent leave is permissible.
- You are subject to the labor laws in your state.
- When caring for a child whose school or place of care is closed:
- You must have been employed at your current employer for at least 30 days.
- You may use vacation leave, paid time off, or sick leave for the first 10 days of unpaid leave to continue receiving a pay check.