Get the IRS to reimburse your businesses for COVID-19 PTO

On March 18, 2020, the President signed the Families First Coronavrius Response Act (FFCRA)" into law. H.R. 6201. The new law requires employers to provide additional sick and family leave to employees who cannot work due to the Coronavirus epidemic. H.R. 6201 §5102.

In order to offset this burden, the Government is giving employers refundable tax credits designed to reimburse the employer for providing additional leave to employees impacted by COVID-19. H.R. 6201 §§7001-7005.

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Normally, employers must pay and withhold Federal Insurance Contributions Act (FICA) taxes for their employees. IRC 3111, 3402, 3402. The FFCRA allows qualifying employers to take a credit against these taxes of up to 100% of the amount the employer paid for leave associated with Coronavirus. H.R. 6201 § 7001 & 7003. If the employer paid more in leave than they owe in payroll tax, the IRS will reimburse the difference. Id. The IRS is even developing accelerated refund procedures to get money to employers as quickly as possible.

Of course, nothing is ever simple with the IRS. The FFCRA limits the types of leave that qualify. Specifically, the FFCRA requires that the employee took the leave because:

1. The employee is subject to an isolation order (including most employees in California, New York, and every other state with a stay at home order);
2. A health care provider advised the employee to self-quarantine;
3. The employee has symptoms of the Novel Coronavirus and is seeking a medical diagnosis;
4. The employee is caring for someone who is subject to an isolation order or quarantine;
5. The employee must care for a child because the child’s school closed due to Coronavirus.

The Government may expand these requirements by regulation but has not done so yet.

The FFCRA contains numerous other rules that limit this relief, including;

• The FFCRA limits how much the employer can get per employee per day. H.R. 6201 §7001(b)(1).
• The FFCRA limits the number of days of reimbursed leave per employee (10 days to 10 weeks depending on the type of leave). H.R. 6201 §7001(b)(2).
• Not all employers will qualify. The credit is primarily intended to benefit medium businesses with 500 or fewer employees and small businesses with 50 or fewer employees. H.R. 6201 5110(2)(A)(i).
• Different rules apply to small and medium businesses.
• The IRS will only reimburse leave for some employees at 2/3 the employees normal pay. H.R. 6201§7001(b)(1).

Despite these pitfalls, these new refundable tax credits provide one of the best tools for businesses to survive these difficult times.

No one was prepared for the Coronavirus. However, we have been through tough times before. Over the past 30 years, we have helped hundreds of businesses survive financial disasters ranging from the Savings and Loan Crisis in the late 1980s to the Financial Crisis in 2008. We are already advising our clients on how to navigate the new world before us including the payroll tax credit, the IRS’s new “People First Initiative,’ and how to secure low-interest SBA loans. We are happy to help you too.

If you have any questions, please give us a call at (858) 481-4844 for a free consultation.

Video Transcript:

The IRS may reimburse you up to 100% of your employees' sick leave that you require to pay to combat the Coronavirus or COVID-19 pandemic by way of payroll tax credits. On March 18th, 2020, the President signed the Family's First Coronavirus Response Act into law. The new law requires employers to provide sick leave to employees who can't work due to the coronavirus epidemic. To offset the employer's burden, the IRS is giving employers refundable tax credits to reimburse the employer for providing paid leave to employees impacted by coronavirus. Employers must pay and withhold social security or FICA taxes for their employees. The Families First Act allows certain employers to claim a payroll tax credit for up to 100% of the amount the employer paid for leave due to the coronavirus.

We will make sure that if you paid out more leave to your employees than you pay in social security tax, we will assure that the IRS reimbursed the employer the excess. We are very familiar with the IRS' accelerated refund procedures to get money to employers as soon as possible. The Families First Act limits the type of leave that qualify for this payroll tax credit to employees subject to an isolation order, California, New York, and other states with the stay at home order, a health care provider advised the employee to self quarantine, the employee has symptoms and is seeking the medical diagnosis, the employee is caring for someone who is subject to an isolation order or quarantine, or the employee must care for a child because the child's school closed due to coronavirus. The Families First Act contains limits including how much the employer can get per employee per day and the number of days of reimbursed leave per employee, between 10 days to two weeks depending on the type of leave.

Not all employers will qualify. The creditor is primarily intended to benefit medium sized businesses with 500 or fewer employees and a small business with 50 or fewer employees. The Tax Law Firm is very familiar with the different rules that apply to both the small and the medium sized businesses. The IRS will try to only reimburse leave for some employees at two thirds the employee's normal pay. Despite these pitfalls, these new refundable tax credits provide one of the best tools for businesses to survive these difficult times. No one was prepared for the Coronavirus. However, we have been through tough times before. Over the past 30 years, we've helped hundreds of businesses survive financial disasters ranging from the savings and loan crisis in the late 80s to the financial crisis in 2008. We advise our clients on how to navigate the new world, including the payroll tax credits, the IRS' new People First Initiative and how to secure low interest SBA loans. Please call me at (858) 481-4844 for a free phone consultation.