On December 21, 2020, after more than eight months of deliberation, Congress passed the Consolidated Appropriations Act, 2021 to provide much needed relief to Americans and their employers dealing with the ongoing repercussions of the COVID-19 pandemic. The Act, signed by President Trump on December 27, 2020, does not extend the requirement for certain employers to provide emergency paid sick leave or emergency paid family and medical leave under the Families First Coronavirus Response Act (FFCRA), which expires on December 31, 2020. However, the Act does extend employer payroll credits under both the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Extended FFCRA Employer Tax Credit for Emergency Paid Sick Leave
Employers who voluntarily provide paid sick leave to employees, as previously required under the FFCRA, may use the FFCRA payroll tax credit for emergency paid sick leave until March 31, 2021. Employers may use the refundable credit for the quarterly payroll taxes imposed on the employer up to 100% of the qualified sick leave wages paid by such employer in each calendar quarter. Qualified sick leave wages are limited to $200 or $511 per day based the employee’s circumstances for requesting the leave.
Extended and Expanded CARES Act Employer Payroll Credit (aka “Employee Retention Credit”)
Beginning on January 1, 2021, through June 30, 2021, employers meeting the following requirements may receive a refundable quarterly payroll tax credit equal to 70% of qualified wages:
- Carrying on a trade or business that has fully or partially suspended operations in any calendar quarter due to a government order limiting commerce, travel or group meetings due to the COVID-19 pandemic, or
- Have experienced a substantial decline in gross receipts.
This credit is also available for employers who began operations in 2020, by substituting “2020” for any reference to “2019” below.
A substantial decline in gross receipts occurs when there is a decline of more than 20% when comparing a quarter in 2021 to the same quarter in 2019. Alternatively, taxpayers may elect to use the prior quarter to meet the reduction in gross receipts test. For example, for Q1 2021 they can elect to compare Q4 2020 to Q4 2019. Employers with reduced gross receipts remain eligible employers until such calendar quarter following the calendar quarter in which gross receipts are greater than 80% of the gross receipts for the same calendar quarter in 2019.
For employers who had on average over 500 full-time employees in 2019, qualified wages include only wages paid to employees who are no longer providing services due to the fully or partially suspended trade or business operations or during the period the business has reduced gross receipts.
For employers who had on average 500 or fewer full time employees in 2019, qualified wages include all wages paid to employees while the trade or business operations are fully or partially suspended or during the period the business has reduced gross receipts.
Qualified wages do not include wages paid pursuant to the FFCRA under the emergency paid sick leave or the expanded FMLA provisions.
Employers who receive Paycheck Protection Program (PPP) loans may still qualify for this credit with respect to wages that are not paid for with forgiven PPP proceeds.
Extended Deferred Social Security Taxes
Employers who choose to defer withholding the employee’s share of social security taxes or the railroad retirement tax equivalent for the period between September 1, 2020, through December 31, 2020, may pay the deferred amounts through increased withholdings through an extended repayment period until December 31, 2021. Penalties and interest on deferred unpaid tax will not begin to accrue until January 1, 2022 (extended from May 1, 2021).
Contact Cynthia Pedersen at email@example.com or a member of your service team to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.