Employers with fewer than 500 full-time or part-time employees
can quickly begin taking advantage of two new refundable payroll tax credits designed to reimburse them, dollar for dollar, for the cost of providing leave to employees affected by COVID-19, the respiratory illness caused by the coronavirus. The Internal Revenue Service (IRS) and the Department of Labor (DOL) unveiled the plan in a March 20 press release.
The announcement clarifies how employers can obtain relief under
the Families First Coronavirus Response Act (FFCRA), signed by President Donald Trump on March 18. The act, effective April 1 through the end of 2020, provides that the federal government will reimburse small and midsize businesses and nonprofit organizations for costs related to giving employees paid leave, either for the employee’s own health needs or to care for family members.
“To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes,” the agencies said.
If an employer is paying out more in COVID-19-required leave than its payroll tax liability, “the employer can immediately file for a refund on forms that the IRS expects to issue” shortly, according to law firm Hanson Bridgett. The IRS expects to process these refunds within two weeks under a new, expedited procedure.
Eligible employers will be able to claim these credits based on qualifying leave they provide between April 1 and Dec. 31, 2020. Equivalent credits are available to self-employed individuals who become ill or must care for a family member.
Update: Eligible employers can now use
Form 7200, Advance Payment of Employer Credits Due to COVID-19, to request an advance payment of tax credits. Employers must retain records supporting each employee’s leave to substantiate the claim for receiving payment of the advance credit (see
How to Claim the Credits on the IRS website).
“Some, but not all leave is reimbursable to the employer through payroll tax credits,” wrote Claire M. Vujanovic, an attorney at law firm McBrayer in Louisville, Ky., “Coordinate with your payroll company to establish appropriate pay codes to capture the leave that is reimbursable.”
Help with Cash Flow
“Employers have been clamoring for guidance on the timing of reimbursement by the federal government for any paid leave they provide their employees after the law goes into effect,” blogged Jeff Nowak, an attorney with Littler in Chicago. “Many employers have had to make difficult furlough and termination decisions worried about whether they would even have the cash flow to cover any paid leave mandates while waiting months, even a year, before the feds reimburse them.”
As written, “the law simply was not…