Tag Archives: tax credits

COVID-19 Relief Bill: FFCRA Leave Mandate Not Extended; Tax Credits Available for Voluntary Leave

Contributed by Kelly Haab-Tallitsch, December, 22, 2020

A $900 billion COVID-19 relief bill passed by Congress late last night is expected to be signed into law by President Trump later today. In addition to an assortment of aid for individuals and businesses, the bill extends several provisions of the CARES Act passed in March, including the tax credit for employers providing paid leave under the Families First Coronavirus Response Act (FFCRA). However, the bill does not extend the mandate for employers to provide paid leave, set to expire December 31, 2020.

What Does This Mean?

Employers are not required to provide paid sick leave or paid family leave for coronavirus-related reasons under the FFCRA after December 31, 2020. But the COVID-relief bill allows employers with less than 500 employees to voluntarily provide this leave and take the tax credit associated with the leave through March 31, 2021. Tax credits are available for qualifying wages (up to a cap) paid while an employee is on leave if (1) the leave would have been required under the FFCRA had the FFCRA been extended through March 31, 2021, and (2) all requirements related to leave under the FFCRA are met.

The bill does not change the maximum amount of paid leave subject to the tax credit for an individual employee. This means that if an employee took 80 hours of paid sick leave to quarantine in 2020, and the employer claimed the tax credit on wages paid during that leave, the employer cannot claim an additional tax credit on wages paid to that same employee for additional paid sick leave in 2021.  

Next Steps

Employers should decide as soon as possible if they will provide voluntary paid FFCRA leave during the first quarter of 2021 – and commit to that decision.  Additionally, employers should administer the leave on a consistent basis and maintain all documentation required to substantiate the leave.

Of course, local and state leave mandates (paid and unpaid), as well as disability-related accommodation and traditional FMLA leave are all still in play. Employers need to continue to carefully navigate the waters of COVID-19 related leaves regardless of the FFCRA.

Click here for a summary of the FFCRA Paid Leave Requirements.

Register Now! Complimentary Webcast: Not Approved For A PPP Loan? What Now?

Your company was not approved for a Paycheck Protection Program (PPP) loan but the bills are still due. There may still be some opportunities available under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help keep your company on its feet.

Join labor and employment attorney Kelly Haab-Tallitsch and corporate and banking attorney Andrew Podgorny on Thursday, May 14, 2020 at 1PM CT as they discuss:

  • Employee Retention Tax Credit
  • Payroll Tax Deferral
  • Economic Injury Disaster Loans
  • Tax Credits for Paid Sick Leave and Expanded FMLA​

We hope you can join us for this timely webcast!

Employee Retention Credit NOW Available for Many Businesses Financially Impacted by COVID-19

Contributed by Meredith Murphy and Robert Jackson, April 1, 2020

dollar bills in hand

On March 31, 2020, the Treasury Department and the Internal Revenue Service launched the Employee Retention Credit, designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50 percent of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.

How to determine if your business qualifies for the Employee Retention Credit:

The credit is available to all employers regardless of size, including tax-exempt organizations. There are only two exceptions: state and local governments and their instrumentalities and small businesses which take Small Business Loans. If an employer takes an SBA loan under the CARES Act (for example, the Paycheck Protection Program, Economic Injury Disaster Loans, and other SBA loans) the employer is not eligible for the retention credit.

Qualifying employers must fall into one of two categories:

  1. The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
  2. The employer’s gross receipts are below 50 percent of the comparable quarter in 2019. Once the employer’s gross receipts go above 80 percent of a comparable quarter in 2019 they no longer qualify after the end of that quarter.

These measures are calculated each calendar quarter.

Calculating your credit:

The amount of the credit is 50 percent of qualifying wages paid up to $10,000 in total. Wages paid after March 12, 2020, and before January 1, 2021 are eligible for the credit. Wages taken into account are not limited to cash payments, but also include a portion of the cost of employer provided health care.

Determining which wages qualify:

Qualifying wages are based on the average number of a business’s employees in 2019.

  • For employers with less than 100 employees: If the employer had 100 or fewer employees on average in 2019, the credit is based on wages paid to all employees, regardless if they worked or not. If the employees worked full time and were paid for full time work, the employer still receives the credit.
  • Employers with more than 100 employees:  If the employer had more than 100 employees on average in 2019, then the credit is allowed only for wages paid to employees who did not work during the calendar quarter.

Receiving your credit (perhaps the most important step):

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.

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.

Form 7200 can be found on the IRS website.  

Instructions for Form 7200 can also be found on the IRS website.   

It will be critically important that you determine if you will receive more aid using the Employee Retention Credit or using the Paycheck Protection Program, Economic Injury Disaster Loans and Loan Advance, SBA Debt Relief, and SBA Express Bridge Loans. You can learn more about those programs on the U.S. Small Business Administration website.

BREAKING NEWS: Supreme Court Upholds Affordable Care Act Tax Credits

Contributed by Kelly Haab-Tallitsch

In a major decision announced earlier today, the Supreme Court upheld the tax credits under the Affordable Care Act (ACA) in states that have a federal health care exchange, affirming the 4th Circuit’s ruling in King v. Burwell.  The Court’s ruling confirms the legality of tax credits for the purchase of individual health coverage in the 37 states that have a health care exchange run by, or in partnership with, the federal government – including Illinois, Indiana, Wisconsin and Missouri.

At issue was the interpretation of language in Section 36B of the ACA authorizing individual tax credits for insurance purchased through an “exchange established by the state.”  Currently, only 13 states run their own exchanges, with the remaining 37 states using the federal exchange or a state-federal partnership exchange. Plaintiffs in King argued that an “exchange established by the state” did not include the federal exchange – an interpretation that would have made the tax credits illegal in 37 states.

Agreeing that the phrase “an exchange established by the state” was ambiguous, the Court looked to the context and structure of the statute to determine the meaning. Finding that language used elsewhere in the ACA indicated state and federal exchanges should be treated the same, the Court interpreted Section 36B to allow tax credits for insurance purchased on any health care exchange created under the ACA.

The Court further reasoned that interpreting the language to prohibit tax credits in states with a federal exchange would be incompatible with the rest of the law and that the tax credits are necessary for the ACA to function as Congress intended. Without individual tax credits two of the ACA’s three major reforms – the tax credits and the coverage requirements – would not apply. The Court further noted that certain other provisions would “make little sense” if tax credits were not available on the federal exchange.

What Does This Mean for Employers?

In affirming the individual tax credits in the 37 states with a federal exchange, the Court has indirectly upheld the employer penalties for failing to offer health coverage.  Penalties for not offering mandated coverage are only imposed on an employer if one or more employees receive a tax credit to purchase individual coverage on the exchange. Employers should continue to analyze their risk of penalty exposure and manage their benefit offerings accordingly.

Perhaps more importantly, the Court’s ruling in King v. Burwell further illustrates the staying power of the ACA and decreases the likelihood of relief for employers any time soon.