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Coronavirus Paid Leave Act Offers Tax Incentives for Employers

By: Ferran Arimon & Amanda Wilson

On Wednesday, March 18, President Trump signed the Families First Coronavirus Response Act (the “Act”) into law. This law required certain employers with less than 500 employees to provide paid-leave benefits to employees affected by the COVID-19 emergency. A discussion of the relief provided to employees can be found here.

In addition to providing paid leave to certain employees, the Act also includes new tax credits and payroll-tax relief to those employers impacted to allow them to pay for the mandatory benefits. The Act also provides some tax relief for self-employed individuals.

Tax Credits; Small employers – The Act allows impacted employers to collect a tax credit equal to 100% of qualified emergency sick-leave and family-leave payments made pursuant to the Act. Some skepticism remains as the credit will only cover payments made from a specified start date and ending on December 31, 2020. The start date has not yet been announced but will be within 15 days of the March 18 date the Act was signed into law.

The new credits will first be used to offset the Social Security tax component of an employer’s federal payroll-tax bill with any excess credit being refundable via a government issued payment to employers. It should be noted that this credit it not available to employers already receiving credit for paid medical and family leave under I.R.C. §45S.

FICA Relief – Qualified leave payments made to employees pursuant to the Act are now exempt from the 6.2% Social Security tax component of the employer’s federal payroll tax that is typically applied to wages. Employers are still required to pay the 1.45% Medicare tax, but are allowed to claim a credit for the outlay.

Tax Credits; Self-employed – Self-employed individuals negatively affected by COVID-19 may claim a refundable credit against your federal income-tax bill, including the self-employment tax. If the credit exceeds your tax bill, the government will issue payments for the excess. The credit is equal to:

  1. 100% of your sick-leave equivalent amount, plus
  2. 67% of the sick-leave equivalent for taking care of a family member (or child following closure of schools)

For the purposes of this credit the “sick-leave equivalent” is equal to the lesser of:

  1. Your daily self-employment income, or
  2. $511 per day for up to 10 days to care for yourself – $200 per day for up to 10 days to care for a sick family member or your child following closure of schools.

Additionally, as a self-employed individual, you can claim COVID-19 emergency family-leave credit for a maximum of 50 days. The credit amount will equal product of the number of qualified family-leave days and the lesser of $200 or your average daily self-employed income. These credit will be available from the start date through December 31, 2020. The start date has not yet been announced but will be within 15 days of the March 18 date the Act was signed into law.

We will continue to monitor the COVID-19 motivated financial relief and do our best to report updates as they become available.

Be sure to visit our Coronavirus (COVID-19) Response Team page to keep up to date on the latest news.

Tax Day Moved From April 15 to July 15

By: Amanda Wilson & Ferran Arimon

Treasury Secretary Steven Mnuchin announced, via Twitter, that the Internal Revenue Service is officially moving the tax filing deadline from April 15 to July 15. The later deadline will apply to all taxpayers and businesses, giving taxpayers additional time to file and make any required tax payments without interest or penalties.

This announcement builds from relief announced earlier in the week, when the Internal Revenue Service announced a 90-day extension to the normal April 15 deadline for paying incomes taxes for many individuals and corporations (discussed here). Today’s announcement goes a step further by moving the filing deadline as well.

We will continue to monitor for additional guidance aimed toward curbing the economic impact of the coronavirus and make you aware of any taxation relief offered by the government.

Be sure to visit our our Coronavirus (COVID-19) Response Team page to keep up to date on the latest news.

The Check May Soon Be In the Mail: McConnell Introduces Tax Relief Legislation

By: Amanda Wilson & Ferran Arimon

On Thursday, Senate Majority Leader Mitch McConnell introduced tax relief legislation, which includes among other benefits, rebate checks to individuals and families. The Coronavirus Aid Relief and Economic Security Act would authorize the Internal Revenue Service to send rebate checks up to $1,200 for individuals and $2,400 for married couples, with an additional $500 per child. The payments would be reduced for individuals with incomes above $75,000 ($150,000 married couples), and would be eliminated for those individuals with incomes in excess of $99,000 ($198,000 married couples).

In addition, the Internal Revenue Service previously announced a 90-day extension to the normal April 15 deadline for paying incomes taxes for many individuals and corporations (discussed here). The legislation goes further to delay the actual tax filing deadline until July 15, and allows individuals and corporations to postpone paying their estimated tax obligations until October 15. The legislation also allows employers and self-employed workers to pay their 6.2% employer’s share of payroll taxes over the next two years. Employers can elect to pay half of their obligation by December 31, 2021, and the other half by December 31, 2022.

Other tax benefits found in the bill are:

  • Companies can immediately write off expenses for physical improvements to real property rather than depreciating over 39 years. This would fix a prior glitch in the Internal Revenue Code and is expected to be a significant benefit to the hospitality industry.
  • Businesses with net operating losses from 2018, 2019, and 2020 can carry back those losses up to 5 years, and the taxable income limitation is temporarily removed (i.e., net operating losses can fully offset income).
  • The 30% interest expense limitation introduced by the Tax Cuts and Jobs Act will be increased to 50%. This means businesses would be able to deduct interest expense up to 50% of their adjusted taxable income for 2019 and 2020.
  • The 10% early withdrawal penalty for disbursements out of qualifying retirement savings will be waived if individuals are responding to coronavirus-related circumstances. The income from the distribution would be recognized over three years rather than in the year of the disbursement, and the withdrawn funds can be recontributed within three years without being subject to the annual contribution caps.
  • To encourage charitable gifts, the 50% adjusted gross income limitation on charitable deductions for individuals is suspended, and the 10% limitation for corporations is increased to 25%.

This legislation has not yet been enacted, and has met with criticism by some Democrats. We will continue to monitor this situation and will update you on the progress of this or other tax relief legislation.

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