IRS Reminds Employers of 3 COVID-19 Tax Credits

The Internal Revenue Service reminded employers affected by COVID-19 on Thursday of three important new tax credits available to them — employee retention as well as paid sick and family leave.

Employee Retention Tax Credit

The employee retention credit, a refundable tax credit, is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.

The credit is available to all employers regardless of size, including tax-exempt organizations. However, the credit is not available to state and local governments and their instrumentalities and small businesses who take small-business loans.

Qualifying employers include: businesses that are fully or partially suspended by government order due to COVID-19 during the calendar quarter as well as those with gross receipts that are below 50% of the comparable quarter in 2019.

Once the employer's gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

Employers will calculate these measures each calendar quarter.

Paid Sick Leave Tax Credit

The paid sick leave credit is designed to allow business to get a credit for an employee who is unable to work (including telework) because of coronavirus quarantine or self-quarantine or has COVID-19 symptoms and is seeking a medical diagnosis.

Those employees are entitled to paid sick leave for up to 10 days (up to 80 hours) at the employee's regular rate of pay up to $511 per day and $5,110 in total.

The employer can also receive the credit for employees who are unable to work due to caring for someone with COVID-19 or caring for a child because the child's school or place of care is closed, or the paid child care provider is unavailable due to the coronavirus.

Those employees are entitled to paid sick leave for up to two weeks (up to 80 hours) at two-thirds of the employee's regular rate of pay or, up to $200 per day and $2,000 in total.

Paid Family, Medical Leave Tax Credit

Employees are also entitled to paid family and medical leave equal to two-thirds of the employee's regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the family leave credit, the IRS said.

Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees' wages by the amount of the credit.

Eligible employers are entitled to immediately receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and the employer's share of Medicare tax on the leave, for the period of April 1 through Dec. 31, 2020.

The refundable credit is applied against certain employment taxes on wages paid to all employees.

Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees' wages by the amount of the credit.

"Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter," the IRS said. "If the employer's employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19."

Eligible employers can also request an advance of the Employee Retention Credit by submitting Form 7200.

— Related on ThinkAdvisor:

IRS Reminds Employers of 3 COVID-19 Tax Credits

Employee Retention Tax Credit

Paid Sick Leave Tax Credit

Paid Family, Medical Leave Tax Credit

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IRS Reminds Employers of 3 COVID-19 Tax Credits

Employee Retention Tax Credit

Paid Sick Leave Tax Credit

Paid Family, Medical Leave Tax Credit

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