March 24, 2020 | Covid-19 | Posted by Ascentis
FFCRA Employer Tax Credits: The Facts for HR and Payroll Professionals
As our society adjusts to the new realities of work in a coronavirus environment, a large majority of Americans are telecommuting, and 96.3% of their school age children are out of school and (hopefully) remaining indoors at home (all students in at least 46 of 50 states, as of 3/22/20).
As employers navigate these unprecedented times, the government aims to provide tax relief through employer tax credits, seemingly one of the most important parts of the new Families First Coronavirus Response Act, in terms of helping ensure the economic viability of the most businesses possible.
We previously provided an overview of the "Families First" Act (FFCRA) which, as a reminder, provides for Emergency Paid Sick Leave for affected employees, under any of the following circumstances:
- To comply with federal, state, or local quarantines or isolation orders related to the COVID-19 illness;
- If the employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
- If the employee is experiencing symptoms of COVID-19 and in the process of seeking a medical diagnosis;
- To care for an individual who is subject to an order as described in #1 above or who has been advised as described in #2 above;
- To care for the employee’s child if a school or place of care is closed, or their childcare provider is unavailable, due to COVID-19 precautions; or
- If the employee is experiencing any other substantially similar condition specified by the Secretary of HHS in consultation with the Secretary of Treasury and the Secretary of Labor.
FFCRA also creates a significant expansion of employee entitlements under the Family & Medical Leave Act, and mandates paid leave in any of the following circumstances:
- For employees unable to work (or telework) due to a need to care for the employee’s son or daughter under 18,
- If the son or daughter’s school or place of childcare has been closed, or
- If the son or daughter’s childcare provider is unavailable due to a public health emergency.
Both new types of paid leave:
- Are limited to private sector employers of fewer than 500 employees, or government entities of any size,
- Can be exempted, upon approval of hardship criteria (“imposition of the requirement would jeopardize the viability of the business”), for employers of fewer than 50 employees, and employers of certain healthcare workers and emergency responders,
- Are limited as to the maximum amount required to be paid each day and in aggregate to each impacted employee,
- Can have their costs offset by tax credits which are readily available for the employer to take.
The tax credits aspects of the FFCRA appear to be some of the least well understood provisions of the law, while at the same time being one of the most important parts of the new mandate, in terms of helping ensure the economic viability of the most businesses possible.
FFCRA Tax Credit Myth-Busting
The tax credits aspects of the FFCRA appear to be some of the least well understood provisions of the law so let’s take some time to address some popular myths and provide the truth about each:
- Myth: We have to wait until the end of the quarter or end of year to take these tax credits against our overall corporate income tax liability.
Truth: No. The reality is the law was written to expedite the tax credits into employers’ coffers just as quickly as possible. The rules published by the IRS covering this issue (IRS News Release IR-2020-57) make it very clear that tax credits for these new types of mandated leave can be claimed IMMEDIATELY, as an exception to “PAYGO” rules, and deducted from employment taxes owed for the current period.
- Myth: If we have more tax credits to claim than we have employment taxes due for the current period, we have to wait or forego the excess credits.
Truth: No. These tax credits are “refundable,” meaning excess credits can be refunded via checks to employers which the IRS promises to send “as quickly as possible,” and is currently quoting refund times of two weeks or less.
- Myth: If we are a non-profit, and have no corporate tax liability, we are not eligible for these tax credits.
Truth: No. Again, the tax credits are refundable, and authorization was expressly written into the regulations to apply to non-profit organizations as well.
- Myth: Employers using PEOs won’t get their full credits, due to co-employment issues.
Truth: Unclear, but we expect at this point the answer is no. The Small Business Efficiency Act of 2014 (SBEA) contained express provisions for employers using Certified Professional Employer Organizations (“CPEOs”) to retain most tax credits to the benefit of the worksite employer. While there is nothing specifically delineated in the language of FFCRA addressing this issue, given that Work Opportunity Tax Credits, Indian Employment credit, research activity credits, credit for employer portion of social security taxes attributable to employee cash tips, and empowerment zone employment credits are all “owned” by the worksite employer under 26 USC §3511(d)(2), and that section goes on to add “any other section approved by the Secretary,” it is reasonable to assume that FFCRA credits will also belong to the worksite employer.
For further details about the paid leave entitlement and tax credit provisions of the Families First Coronavirus Response Act, please join us on our webinar, “The Families First Coronavirus Response Act of 2020: Keys to Compliance,” and check out our COVID-19 resource page for businesses.
-----About the Author
Bob Greene currently serves as Senior HR Industry Analyst at Ascentis. Bob’s 40 years in the human capital management industry have been spent in practitioner, consultant and vendor/partner roles. As practitioner, he managed payroll for a 5,000-person bank in New Jersey. As consultant, he spent 8 years advising customers in HRMS, and payroll and benefits system design as well as acquisition strategies. Bob also built a strategic HCM advisory practice for Xcelicor (now Deloitte Consulting.)
As vendor/partner, he has had prominent roles in sales support, marketing and product management at several companies and currently Ascentis. Bob has been a Contributing Editor for IHRIM's Workforce Solutions Review journal, for the past eight years. His experience also includes two years as Adjunct Lecturer in HRIS at Benedictine University in Lisle, Illinois. In addition to his 39 years of experience, Bob also holds a BA in English from Rutgers University.