The Bottom Line
The Bottom Line is where Klatzkin’s advisors provide analysis and insight into key developments in taxation, accounting, and other issues and how they affect businesses and individual taxpayers.

Coronavirus COVID-19-Related Tax Credits

By JOHN BLAKE, CPA

March 17, 2020

** Updated March 19, 2020: President Trump has signed the Families First Coronavirus Response Act (FFCRA) into law. **

This is the time of year when most New Jersey businesses work closely with their accountant to answer last-minute questions, provide additional documentation, and sign the needed forms to complete the corporate return. It’s common for there to be discussions about future business investments such as the purchase of new vehicles or equipment, real estate acquisition, or expansion plans. However, 2020 is proving to be an exception as the Coronavirus (COVID-19) has dominated the headlines highlighting its far-reaching impact. Not only has New Jersey Governor Murphy closed movie theatres, casinos, and gyms, but professional sports leagues have suspended their seasons reflecting the broad concern. Given these changes, the Federal Reserve announced an interest rate reduction to 1%, and the House recently passed the Families First Coronavirus Response Act.

The Act mandates sick leave policy changes for certain companies and outlines various tax incentives, which can also be claimed. To help clients, prospects, and others, Klatzkin has provided a summary of key changes below.

Emergency Paid Sick Leave 

A component of the overall legislation, known as the Emergency Medical Sick Leave Act, requires companies with less than 500 employees to provide two weeks of paid sick leave time, at regular pay rate up to $511 per day and $5,110 in the aggregate (over a two- week period),  to those seeking a diagnosis, care, or quarantine. Also, employers will be required to pay the two-thirds regular rate, up to $200 per day and $2,000 in the aggregate (over a two- week period), for time off due to care for an affected family member, or to care for a child whose school or childcare provider is closed. Full-time employees are entitled to 80 hours of paid time off and part-time employees the number of hours they would typically work in two weeks. It also ensures that those who work under a multiemployer collective agreement and whose employer pays into a multiemployer plan can receive access to the benefits.

Paid Sick Leave Tax Credits

The following tax credits are available to help businesses manage the financial impact of the paid leave mandates:

  • Payroll Credit for Paid Sick Leave– There is a refundable tax credit equal to 100% of qualified sick leave wages paid by the employer for each quarter. The credit can be taken against the employer portion of Social Security taxes due to the required wages paid for emergency sick leave. For wages paid to full-time employees that obtain a diagnosis, care or are subject to isolation and take sick leave, the credit is limited to $511 per day. For amounts paid to employees caring for sick relatives or caring for a child whose school has been closed, the credit is limited to $200 per day. If the credit exceeds the employer liability, then the balance is refundable.
  • Self Employed Individual Credit –There is also a 100% refundable tax credit available for qualified sick leave related to the diagnosis, care, and isolation associated with Coronavirus. For those caring for an affected family member of a child facing school cancellation, the credit is equal to 67% of qualified sick leave. This credit is available against federal income taxes and is refundable. There will be documentation requirements to claim the credit, but the specifics are not yet available. Since authority has been given to the Secretary of Treasury, it’s expected there will be additional information and guidance available at a later date.

Family Leave Act Changes 

Another component of the overall legislation, known as the Emergency and Family Medical Leave Expansion Act, amends the Family and Medical Leave Act of 1993 to expand benefits. This means any company with less than 500 employees is required to offer those with at least 30 days of service, the right to take up to 12 weeks of job-protected leave if they experience a Coronavirus event. This includes the time needed to adhere to isolation orders, care for an at-risk family member or a child when their school or care provider is closed. It’s important to note that after two weeks of paid leave, employees will receive compensation that is no less than 2/3 of their usual pay.

Family Leave Act Tax Credits

The following tax credits are available to help businesses manage the financial impact of the paid leave mandates:

  • Payroll Credit for Required Family Leave– There is a 100% refundable tax credit of qualified family leave wages paid. The credit is designed to be used against the employer’s Social Security portion of payroll taxes. Qualified wages are those required to be paid following the Family Leave Act changes. The amount of wages considered for each employee is limited to two-thirds of their regular rate – of $200 per day and capped at $10,000 in the aggregate ten weeks of paid expanded family and medical leave. If the credit exceeds the employer’s total liability, then it can be refunded.
  •  Self Employed Credit for Family Leave – There is a refundable tax credit equal to 100% of qualified family leave equivalent for specific self-employed individuals. This includes those who would be entitled to receive payment under the Family Leave Act changes if they worked for someone other than themselves. The amount is capped at the lesser of $200 per day or the average self-employment income for the taxable year per day, and only days taken to manage a Coronavirus diagnosis or to care for a child or family member is permitted. The credit is allowed against income taxes and is fully refundable.

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We will continue to monitor this legislation and report back on key developments as they occur.  Ensuring your company is prepared for the potential expenses from mandatory policy changes is an essential step. If you have questions about the information outlined above or need assistance activating resources required to ensure business continuity in light of COVID-19, Klatzkin can help. For additional information, call us at 609-890-9189 or click here to contact us. We look forward to speaking with you soon.

About the Author

John focuses on helping with the tax needs of real estate, technology and manufacturing, distribution, and wholesale companies. He works with management and business owners to review their business plan, tax planning process, identify additional saving opportunities, and ensure compliance and reporting deadlines are met. Also, John helps educate clients about the new opportunities available...

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