COVID-19 Economic Relief Update: IRS Notice 2020-15 and Families First Coronavirus Response Act
Katz, Sapper & Miller continues to monitor IRS guidance and congressional legislation that impacts our clients. Two recent developments include the issuance of IRS Notice 2020-15, which relates to testing and treatment of COVID-19, and the proposed Families First Coronavirus Response Act, which provides economic relief for those affected by COVID-19.
IRS Notice 2020-15: High-Deductible Health Plans and Expenses Related to COVID-19
IRS Notice 2020-15 provides that a high-deductible health plan (HDHP) will not lose its status as an HDHP merely because the health plan covers the cost of testing for or treatment of COVID-19, even without a deductible or with a deductible below the minimum deductible for an HDHP. This applies to all medical care services and purchased items related to testing for and treatment of COVID-19. Furthermore, individuals covered by such health plans may continue to contribute to a health savings account (HSA).
Families First Coronavirus Response Act
The Families First Coronavirus Response Act (“Act”) was passed by the House of Representatives on March 13, 2020. The Act still requires Senate approval before it can be signed into law by President Trump. The Senate is expected to vote on the Act this week.
The Act’s provisions are primarily nontax provisions impacting employment laws and additional funding for various government programs. Among the many provisions, the Act requires private employers with fewer than 500 employees to provide 14 paid sick days and three months of paid family and medical leave to most employees during the coronavirus crisis. The Act requires full wages to be paid for sick days but only two-thirds of normal wages to be paid for the emergency family and medical leave. However, the Act does provide the following payroll tax credits designed to offset the cost of providing the additional paid leave:
- Sick Leave Credit – The credit is for a maximum of $511 per day per employee paid to employees who are receiving paid sick leave to care for themselves.
- Family Leave Credit – The credit is for a maximum of $200 per day per employee while the employee is receiving paid family and medical leave, up to an aggregate of $10,000 in paid wages per employee.
- Self-Employed Tax Credit – Self-employed individuals will be entitled to a credit against the self-employment tax for their “sick-leave equivalent” amount. The details for documenting this credit are yet to be provided by the Department of the Treasury.
The sick leave and family leave credits are available to businesses that pay wages to employees in compliance with the Act’s paid leave requirements. These are payroll tax credits that apply against the 6.2% employer portion of the social security tax; the employee portion is not affected by the Act. These credits will be claimed on a quarterly basis. Taxpayers must include the amount of credit received in gross income in order to avoid a double benefit. Furthermore, Treasury Secretary Steven Mnuchin has stated that the Department of the Treasury will use its regulatory authority to provide procedures to advance funds to qualifying businesses concerned about cash flow. Thus, expect additional guidance regarding the implementation of these credits.
We continue to monitor these developments as well as future COVID-19 economic relief initiatives, including the possible delay of the April 15 tax deadline and how states will respond to new legislation and regulations. We will provide updates as more information becomes available.
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