Stimulus programs and tax law changes due to COVID-19
As you know, there are a lot of changes taking place, and updates to employment and tax law in response to the spread of Coronavirus. The current administration has announced a number of legislative changes, but the details of those changes and the mechanics of those changes (in many cases) are not yet fully developed or established - as was the case with TCJA, there were significant revisions to the policies as more work was done by Senate and Congress. A & P is monitoring the changes and will be posting updates to the website, please continue to check back here. Consistent with the preceding, please understand that some of the below may change as further clarifications are provided by the Administration, as well as the SBA, IRS, DOL, etc.
Note: The original writing of this post was prepared on 3/30/2020. I have indicated updates in bold text, and indicated the date of the change in the space next to changes.
In this post, I will be discussing/covering updates related to the Families First Coronavirus Response Act (FFCRA) and will touch briefly on certain areas of the CARES Act (among which are provisions for small business lending). The below is my summary from a Paychex webinar I attended yesterday. There are a few things to note/highlight here -
1. The provisions of the FFCRA generally apply to the period from April 1, 2020 through Dec 31, 2020. That information is as of this writing.
2. Generally speaking, employers cannot "double-dip" on the loans vs. the tax credits. e.g. if you obtain a paycheck protection program loan, you cannot also take the employee retention credit.
3. This legislation is not retroactive. Therefore, if you paid sick time, wages, etc. for a prior period (for example March 1 - March 15th) the FFCRA provisions do not apply. However, the Employee Retention Tax Credit may apply.
4. There are individual stimulus payments that were also enacted. However, I am not addressing those here.
FFCRA includes both the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act. The Emergency Family and Medical Leave Act is a temporary expansion of FMLA that includes public health emergency leave - (like the Emergency Paid Sick Leave Act, there is a provision for a refundable tax credit). (There are some other components to FFCRA but they do not require input or decisions from employers). Emergency Paid Sick Leave Act - requires employer to provide sick time, available for immediate use, if employees are affected by COVID-19.
Who does it affect?
Private employers with fewer than 500 employees. Employees who have been on the payroll for the 30 days immediately preceding the qualified leave are eligible for the Emergency Family and Medical Leave Expansion Act. All employees, regardless or hire date, are eligible for the provisions of the Emergency Paid Sick Leave Act (updated on 3/31/2020).
A payroll tax credit is provided. The tax credit is equal to 100% of the wages paid by an employer each calendar quarter. The tax credit is allowed against the employer portion of the Social Security Tax rate of 6.2%, Medicare 1.45%, and Federal Income Tax Rate. To the extent that the payroll cost exceeds the tax credit, the balance of the payroll tax credit is available to the employer.
What is required under the Emergency Paid Sick Leave Act (EPSL)? Private employers with less than 500 employees and certain public and government employers are required to provide up to 80 hours of paid sick leave to eligible full-time employees; part-time employees are eligible for paid sick time in an amount equal to the average number of hours regularly scheduled in a two-week period. Calculations and caps for compensation vary dependent on the reason for leave, up to the maximum $511/day if the employee is directly impacted, and up to $200/day if it is for care provided to someone else. Aggregate caps exist, as well. Employers are required to post a notice of employee rights, which can be found online at www.dol.gov/agencies/whd/pandemic (this is critical, because your employees should know their rights).
What Qualifies as a leave under the Emergency Family Medical Leave Expansion Act (EFMLA)? The employee is unable to work (or telework) due to a need for leave to care for a son or a daughter younger than 18 years of age of such employee if the school (a primary or secondary school) or place of care has been closed, or the childcare provider of such a son or daughter is unavailable, due to a public health emergency. Eligible employees who qualify for FMLA leave would be paid by their employer after the first 10 days of leave at a rate of not less than 2/3 of their current rate of pay for the number of hours the employee would otherwise be scheduled to work, up to a maximum of $200/day or an aggregate of $10,000, for up to 12 weeks in the benefit year. Employees taking leave under the Emergency FML Expansion Act must be permitted to elect to use any available paid time off including vacation, personal time, medical leave and/or sick leave during their FMLA leave, but employers may not mandate they do so.
IMPORTANT TO NOTE Paid sick leave available under the Act is in addition to sick leave available under an employer’s existing policy. Employers (correction dated 3/31/2020 from previous post) are prohibited from making any changes to their policy on or after enactment of the Act. Employees may not be required to use other available paid time off before using paid sick time under the Act. Employees covered under a multiple-employer bargaining agreement are addressed separately in the legislation. Exemptions apply for employers of healthcare workers and emergency responders at their election. Paid sick time provided under the Act is not pre-empted by other federal, state, or local laws. Employees may be eligible for both Emergency Family Medical Leave and Emergency Paid Sick Leave (basically, if an employee wants both, they are entitled to both). This was ultimately, a political compromise. The thinking here was that the social effects of Coronavirus (an employee's inability to find childcare, how long the recovery from illness might take, etc.) might be longer than 2 weeks. Therefore, if an employee is unable to work (or telework) for more than 80 hours, they have the additional component of Emergency Family Medical Leave available to them. The important distinction with respect to EPSL vs. EMFLA - EPSL is for the employee to care for his/her self. EMFLA is for an employee to care for another individual - and the law does not limit who this "individual" is - it could be a child, spouse, sibling, parent, other dependent, etc. Looking ahead - there are three "prongs" of anticipated government action to stimulate the economy:
-SBA Economic Injury Disaster Loan Program (the provision for loans of up to $2M at an interest rate not to exceed 4%, inclusive of a grant of $10,000)
-Federal Reserve Main Street Business Lending Program (bolsters lending from SBA - still under Congressional consideration)
-Federal Reserve Term Asset-Backed Securities Loan Facility
Some questions and answers from the Paychex webinar:
Q: How can a business exempt itself from the requirement to provide Emergency Family Medical Leave and Emergency Paid Sick Leave?
A: We don't yet have specifics on how businesses can exempt themselves from the paid family leave requirement (if they are asserting that providing said leave would create a severe economic hardship for their company - to the point that they could no longer operate).
Q: If you have laid off employees,and those employees have already filed for unemployment, do you have to provide them with leave?
A: No. However, if you determine you'll be rehiring employees, they may be entitled to some of the leave provisions. The details of this are pending from the DOL.
Q: What forms/documents are required to get the payroll tax credit?
A: We are still waiting for guidance from the IRS on that.
Q: What type of proof are employers able to ask for, to substantiate that employees need sick leave?
A: No definitive guidance yet.
Q: How do you track payments (of Emergency Paid Sick Leave, or Emergency Family Medical Leave Act)
A: No definitive guidance yet - Paychex has suggested they may add a "leave type" code - i.e. Emergency Paid Sick Leave vs. normal sick leave. Check with your payroll provider.
Q: I need cash flow - can I get the employer tax credits sooner (i.e. do I have to wait until I file my quarterly 941 to get access to the tax credit)?
A: The employer can retain the payroll taxes they would normally pay to the IRS. Employer may retain and use these funds for normal operating expenses. Employers do have to reconcile/account for the funds at the end of the quarter. (Also, be very careful that you do not retain payroll taxes in excess of what you would owe, as doing so could cause you to incur a "trust fund penalty" - updated 3/31/2020).
Q: Can you get an advance of the expected credit (of the above)?
A: The IRS is working on that. No guidance yet.
Q: For part-time employees, how do you figure out how much PTO to give?
A:Take an average of the hours worked over a two-week period. The general rule of thumb is to look at a recent pay period. (The DOL has provided updated guidance here - Base your calculation of "average hours worked" on the average of the past six months. If the part-time employee has worked less than six months, the average should be calculated based on "amount of time reasonably expected to work" - they further suggest that the employer and employee "come to an understanding with each other" - so basically negotiate what each party thinks is reasonable - updated 3/31/2020).
Loans/Assistance available under the CARES Act
SBA Paycheck Protection Loan - a loan made by the SBA, the amount of which is calculated by the following: it is the lesser of:
1a: 2.5X average monthly payroll for the 12-month period preceding the date of the loan
1b: The amount of a disaster loan previously taken, that has been converted into a paycheck protection loan
The Paycheck Protection Loan is forgivable if certain conditions are met - if the funds loaned are disbursed (in the 8 weeks following the funding of the loan) for payroll (including health insurance and other benefits), mortgage (for business property owned), rent, and certain utility payments. There are limitations as to how much salary can be paid (no forgiveness is allowed for wages paid to employees in excess of $100,000 - my understanding is that, therefore if you had someone at $200K/year, you could pay 1/2 of their wages and still get forgiveness), and the amount of forgiveness is reduced if you cut wages for certain wage rates, if you terminate/lay off employees, etc.) See the URLs below for a specific discussion of those conditions. The loans will be funded/administered through commercial banks (i.e. US Bank, BofA, Chase, Wells Fargo, etc.) If you have a banking relationship, your quickest route will be to approach them. Thus far, I have only seen an application link on US Bank's website. It's not really an application - it's more like you're reaching out to US Bank to tell them that you're interested in such a loan.
Economic Injury Disaster Loan - total loans of up to $2,000,000 can be made, at an interest rate not to exceed 4% - a personal guarantee is required for loans of $200,000 or more. The loans can be paid back over a term as long as 30 years, depending on various factors. Applications are filed with/through the SBA. I don't have any specifics on how long the application approval time is. Also, no information has been released as to what documents and supporting schedules are needed. When I figure that out, I will communicate that, likely through the website.
Economic Injury Disaster Grant - A grant of up to $10,000 can be requested/applied for. True to form, the grant is just that - money which you receive, with no need to pay it back. From what I've seen, you need to apply for the Economic Injury Disaster Loan in order to "check the box" indicating that you'd like to be considered for the grant.
Employee Retention Tax Credit (applies for wages paid from March 13, 2020 to December 31, 2020) The employee retention tax credit (“ERTC”), which is found in Section 2301 of the CARES Act, provides a refundable payroll tax credit for 50 percent of qualified wages paid by employers to employees during the COVID-19 pandemic. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the coronavirus-related circumstances described above. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. Wages paid for under FFCRA are not eligible for the employee retention tax credit.
This is a very busy time for us - we are preparing returns and also are trying to develop a better understanding of the new stimulus programs. We appreciate your patience as we figure out the different issues.
FURTHER UPDATES FROM A SPIDELL WEBINAR I ATTENDED TODAY (3/31/2020)
-If your business was forced to shut down due to Coronavirus, and your staff is unable to telework, the Paid Sick Leave Benefits take effect.
-Businesses seeking to exempt themselves from the EPSL or EFMLA requirements can exempt themselves from only those requirements (i.e. you cannot deny employees other sick time, or PTO, etc.) By seeking the exemption, the business is effectively saying, paying these time off expenses would create an undue economic hardship that could severely impact the ability of my business to run. There continues to be no meaningful guidance about the approach, application, and justification of this position.
-Employer penalties for non-compliance are stiff, but the IRS and DOL have stated that they will not enforce any penalties during April, so long as the employer can demonstrate that reasonable effort was made to try to comply with the law. They have stated that April will be a month of "employer education and assistance" and that enforcement will begin in earnest from May 2020 forward.
-If your employees are teleworking, advise them of their rights as it relates to paid sick leave via email. If your employees are in your physical building/office, post a notice conspicuously - the DOL has sample notices.
-There is a 10-day waiting period before employees can use Paid Family Leave.
Until December 31, 2020, the Act allows employees who have worked more than 30 days for an employer who employs fewer than 500 employees to take up to 12 weeks of employer-paid family leave. An employee only qualifies if they are unable to work (or telework) because they need to take care of their child, under 18 years of age, due to school or child care closures related to a COVID-19 emergency declared by a governmental authority. (29 U.S.C. §2611 et seq.; FFCRA §3102) There is a 10-day waiting period during which the employee may use employer sick-pay or vacation pay, including the paid sick leave benefits previously discussed.
I have included links to certain articles (and in some cases, webinars) providing guidance - see below:
https://www.youtube.com/watch?v=kT0Pn8EQRlc (webinar) https://www.forbes.com/sites/anthonynitti/2020/03/25/congress-reaches-agreement-on-a-coronavirus-relief-package-tax-aspects-of-the-cares-act/#3d0c65dd5f99