The Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security, or CARES Act, provide refundable tax credits to certain employers that continue to pay their employees during the COVID-19 pandemic. The Internal Revenue Service is also providing employers eligible for these credits with relief from the penalty for failing to timely deposit employment taxes.
Qualified Leave Wages Credits
The FFCRA established two refundable tax credits — the qualified sick leave wages credit and the qualified family leave wages credit — in an effort to provide “eligible employers” with the funds necessary to pay “qualified sick leave wages” and “qualified family leave wages” to their employees during the period April 1, 2020, to Dec. 31, 2020. The credits are allowed against the eligible employer’s portion of Social Security tax due on all wages paid during the period April 1, 2020, to Dec. 31, 2020. If the amount of the credit exceeds the employer’s Social Security tax liability, then the excess is treated as an overpayment and refunded to the employer.
Patrick McCoy is the Director of Finance at the Metropolitan Transportation Authority (MTA) in New York where he manages the Authority's debt portfolio (currently $35 billion) and directs the issuance of over $2 billion in tax-exempt municipal bonds annually under the Authority's multi credit borrowing structure. The MTA is an active issuer of debt obligations to finance the bond funded portion of MTA's Capital Program. Pat has previously served as the Executive Director of the New York City Municipal Water Finance Authority, a public benefit corporation of the City of New York that provides capital financing for the City's water and sewer system. Pat was Executive Director of New York Water from January 2007 through August 2008.Previous positions include:Deputy Director of Finance for the MTA, 2002 through 2004, and Director of Finance, 2004 — 2007.Manager of Investor Relations for the NewPower Company, a publicly traded retail energy provider headquartered in Purchase, New York. Mr. McCoy was involved in NewPower's initial public offering and listing on the New York Stock Exchange. 2001 — 2001.Manager of Investor Relations for the New York City Municipal Water Finance Authority, the Transitional Finance Authority (TFA) and TSASC, Inc. (Tobacco Securitization), 1994 — 2000. Pat created the first investor relations program for the Authority.Senior Budget Analyst, Office of Management and Budget, Community Development Unit. 1991 — 1994.Pat currently serves on the Board of Directors of the Westchester County Health Care Corporation and on the Executive Board of the Government Finance Officer'sAssociation of the United States and Canada (GFOA).Pat holds a M.S. Degree in Urban Policy Analysis and Management from the New School University in New York, and a B.A. from St. Ambrose University in Davenport, Iowa.
Leslie M. Norwood is Managing Director and Associate General Counsel of the Securities Industry and Financial Markets Association. She has served the Association or its predecessor organizations for over 10 years. As the Co-Head of the Municipal Securities Division, Ms. Norwood is responsible for the legal, regulatory and market practice initiatives of the Association relating to all municipal securities products.Prior to joining the Association, Ms. Norwood was an Associate in the Corporate and Securities department at Greenberg Traurig. She also spent 6 years as an Associate in the Public Finance department of Sidley Austin LLP (formerly known as Brown & Wood LLP) where she represented bond issuers, borrowers and underwriters in fixed and variable rate transactions; general obligation, subject to appropriation and revenue bond (public power, education, health care and cultural institutions) transactions; and transactions with credit enhancement. Ms. Norwood received a B.A. from the University of California, Berkeley and her J.D. from Boston University School of Law. She is a member of the New York, New Jersey and California Bars.
Eligible employers claim the qualified leave wages credits on Form 941, but they can benefit more quickly from the credits by reducing their federal employment tax deposits. In other words, eligible employers can retain federal employment taxes that they otherwise would have deposited in an amount up to the level of qualified leave wages credits for which they are entitled.
Eligible employers are businesses and tax-exempt organizations that have fewer than 500 employees, and are required under the FFCRA to pay qualified sick leave wages and qualified family leave wages. Qualified sick leave wages are wages an eligible employer is required to pay to an employee who is unable to work or telework because of either the employee’s personal health status as a result of COVID-19 or the employee’s need to care for others as a result of COVID-19. Qualified family leave wages are wages an eligible employer is required to pay to an employee who is unable to work or telework because the employee is caring for a child whose school or place of care is closed, or whose child care provider is unavailable, due to COVID-19.
The qualified sick leave wages credit is generally equal to the amount of qualified sick leave wages paid plus the amount of qualified health plan expenses allocable to the qualified sick leave wages paid plus the employer’s portion of Medicare tax due on the qualified sick leave wages paid. However, the maximum amount that can be treated as qualified sick leave wages paid to any one employee is limited, and the limit depends on why the employee receiving the wages is on sick leave. If the employee is on sick leave because of their own health status, the limit is $511 per day up to a total of $5,111. If the employee is on sick leave because they are caring for others, the limit is $200 per day up to a total of $2,000.
The qualified family leave wages credit is generally equal to the amount of qualified family leave wages paid plus the amount of qualified health plan expenses allocable to the qualified family leave wages paid plus the employer’s portion of Medicare tax due on the qualified family leave wages paid. However, the maximum amount that can be treated as qualified family leave wages paid to any one employee is limited to $200 per day up to a total of $10,000.
Employee Retention Credit
The CARES Act also established a refundable tax credit — the Employee Retention Credit — for “eligible employers” that pay “qualified wages” to their employees between March 13, 2020, and Dec. 31, 2020. The credit is equal to 50 percent of qualified wages paid, limited to a maximum credit of $5,000 per employee, and is allowed against the eligible employer’s portion of Social Security tax due on all wages paid during the period March 13, 2020, to Dec. 31, 2020. If the amount of the credit exceeds the employer’s Social Security tax liability, then the excess is treated as an overpayment and refunded to the employer.
Eligible employers claim the Employee Retention Credit on Form 941, but they can benefit more quickly from the credit by reducing their federal employment tax deposits. In other words, eligible employers can retain federal employment taxes that they otherwise would have deposited in an amount up to the amount of the Employee Retention Credit for which they are entitled.
Eligible employers generally are businesses and tax-exempt organizations that either:
- Fully or partially suspended operations during 2020 due to a “stay-at-home” order; or,
- Experience a significant decline in gross receipts during 2020
However, employers that receive a Paycheck Protection Program loan are not eligible employers and, thus, they may not claim the Employee Retention Credit.
Qualified wages are generally wages paid by an eligible employer to employees between March 13, 2020, and Dec. 31, 2020, and during the period the employer experienced either a full or partial suspension of operations due to a “stay-at-home” order; or a significant decline in gross receipts.
Relief from penalty for failure to deposit employment taxes
An employer’s failure to timely deposit federal employment taxes is generally subject to a penalty. However, the IRS recently announced in Notice 2020-22 that an employer that is eligible for the Qualified Leave Wages Credits and/or the Employee Retention Credit will not be subject to a penalty for failing to deposit employment taxes if:
- The amount of the employment taxes the employer fails to timely deposit is less than or equal to the amount of the employer’s anticipated Qualified Leave Wages Credits and/or the Employee Retention Credit; and
- The employer did not seek payment of an advanced credit by filing Form 7200, “Advanced Payment of Employer Credits Due to Covid-19.”
As a result, an employer may reduce, without penalty, the amount of a deposit of employment taxes by the following amounts paid in the calendar quarter prior to the required deposit:
- Qualified leave wages;
- Qualified health plan expenses allocable to qualified leave wages;
- The employer’s share of Medicare taxes paid on the qualified leave wages; and,
- Qualified retention wages.
