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IRS Issues Preliminary Guidance for Claiming New Payroll Tax Credits Provided by Families First Coronavirus Response Act

Posted 12:01 PM by

On March 20, the IRS, the Treasury Department, and the Labor Department announced preliminary guidance for claiming the new payroll tax credits provided under the Families First Coronavirus Response Act.

IR 2020-57 allows employers who pay wages to coronavirus-affected employees, in compliance with the Act’s mandatory paid leave benefits, to retain an amount of payroll taxes they would otherwise be required to deposit with the IRS. Employers can retain, up to the amount of mandatory benefits paid, withheld federal income taxes and both portions (employee share and employer share) of Social Security and Medicare taxes with respect to all employees.

If there are not sufficient payroll taxes to cover the full amount of mandatory benefits paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced this week.

The full payroll tax credit allowed is generally equal to the amount of mandatory benefits paid in accordance with the Act, plus an allocable share of health insurance costs. It is unclear at this time whether employers can also retain an allocable share of health insurance costs from their required payroll tax deposits. We will provide additional guidance on this topic as it is issued this week. 

The following examples illustrate how this would apply in two different situations:

  • An eligible employer paid $5,000 in sick leave as required by the Act and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees. The employer can retain up to $5,000 of the $8,000 of taxes it was going to deposit with the IRS. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date. 
  • An eligible employer paid $10,000 in sick leave as required by the Act and was required to deposit $8,000 in payroll taxes. The employer could retain the entire $8,000 of taxes and file a request for an accelerated credit for the remaining $2,000. 

Equivalent income tax credits are available to eligible self-employed individuals unable to perform services due to coronavirus-related circumstances. Those individuals will claim the credits on their income tax return, and they can take the expected credit amount into account in reducing their 2020 estimated tax payments.

The Labor Department will provide a 30-day non-enforcement period for good-faith compliance efforts and will instead focus on compliance assistance during that period. Additionally, the Labor Department will provide further guidance on exemption eligibility for businesses with fewer than 50 employees. 

We encourage all businesses potentially impacted by the Act’s mandatory paid leave benefits to seek proper legal counsel in determining how to apply these labor and employment laws to your specific situation. 

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