5 Pressing Tax and Benefits Considerations for Employers
The rapid pace at which the COVID-19 virus spread upended 2020 strategies and left organizations of all types and sizes reeling. Disruptions to supply chains and within a workforce left many with difficult decisions on how to minimize the financial damage of the pandemic. Federal leadership recognize that organizations top expense is on personnel. The coronavirus stimulus legislation contained provisions that encourage employers to maintain their headcount. The following are five tax and employee benefits provisions worthy of timely consideration.
Employee Retention Credits
The Coronavirus, Aid, Relief, and Economic Stimulus (CARES) Act creates an employee retention benefit. This payroll tax credit covers March 13, 2020 through Dec. 31, 2020, and is designed to help employers who had to fully or partially suspend operations due to a government-ordered pandemic shutdown. Benefits under the retention credit work differently depending on the size of the employer. For example, organizations with 100 or fewer full-time employees will receive credits based on 100% of the wages paid, regardless of whether operations were partially or fully shutdown due to COVID-19. Larger employers will receive a credit based on the first $10,000 of compensation, including healthcare benefits paid to employees who are unable to provide services during a coronavirus shutdown order. Organizations whose gross receipts declined by more than 50% compared to the same quarter in 2019, or had their operations fully or partially suspended as part of the virus response, will receive a payroll tax credit for 50% of wages paid.
Families First Coronavirus Response Act Credits
In the second phase of the emergency response legislation known as the Families First Coronavirus Response Act (FFCRA), employers can receive several credits related to their employees’ use of sick leave and paid time off benefits. The legislation mandates paid time off for coronavirus-related absences for organizations with fewer than 500 employees. Coronavirus-related absences include time off to care for a child whose school or daycare closed as a result of a COVID-19 shutdown order. Qualifying employers can claim a refundable payroll tax credit equal to the applicable per-employee benefit but not to exceed the applicable per-employee cap. (More on the mechanics of the paid sick leave credit can be found here.)
The FFCRA also contained paid family leave credits for employers with less than 500 employees. It mandates that employees be permitted up to 10 weeks of family leave to care for a child whose school or daycare closed on account of the coronavirus. Employers are not required to cover the first 10 days of the leave (though employees can supplement with any accrued PTO or sick time). For the paid portion of the leave, the employer can receive a per-employee-tax credit up to $200 per day but no more than $10,000 per employee.
Organizations will want to evaluate all of their full and part-time employees to determine whether they are eligible for the FFCR Act benefits just as they would to determine eligibility for the federal Family and Medical Leave (FMLA) Law. There are exemptions to some of the requirements for smaller employers (less than 50 employees). Generally employees will have had to work for the organization for at least 30 days before being able to access the FFCR Act provisions. For details, see our FAQ here.
Payroll Tax Holiday
Under the CARES Act, employers can elect to defer their federal payroll tax liability through the balance of the year. At least 50% of the deferred amount must be paid during 2021, and the remaining 50% would be paid in 2022.
This provision is exclusive with the Small Business Administration (SBA)’s Paycheck Protection Program. The SBA’s program permits employers with 500 or fewer employees to access up to $10 million in forgivable loans to assist with payroll, mortgage or lease payments, or utilities costs. In exchange, organizations must compensate all employees for eight weeks and not reduce their employees or wages beneath a certain level between the enactment of the CARES Act and June 30, 2020.
CARES Impact on Retirement Plans
Provisions in the CARES Act also permit employees to receive emergency distributions from their retirement plans for a coronavirus-related need of up to $100,000 without early withdrawal penalties. Employees can access these distributions if they have been diagnosed with COVID-19 virus, have a spouse or child diagnosed, or if they experience financial loss as a result of being quarantined, furloughed, or unable to work due to childcare needs during a pandemic-related shutdown. Employers will need to formally amend their plan on or before the last day of the plan year beginning on or after Jan. 1, 2022, in order to be in compliance with the changes. See our FAQ here for further details on the retirement plan benefits available.
Employers that offer defined benefit plans have some relief related to their defined benefit plan funding deadlines. Under the CARES Act, the deadline for any required contribution due in 2020 has been extended to Jan. 1, 2021, including minimum required contributions and quarterly contributions. For more details, see our coverage here.
Student Loan Assistance
Several other employee benefits received updates under the CARES Act as well. The law currently permits up to $5,250 to be excluded from an individual’s gross income for employer-provided education assistance programs. Employees generally must use the employer’s education assistance to subsidize current educational expenses. Under the CARES Act, employees can use their employer-provided education assistance to pay student loan payments between March 27, 2020, and Dec. 31, 2020. For more information, see our insights here, or download the Employer Compliance Handbook.
The coronavirus pandemic creates numerous challenges for employers, and the benefits to offset some of those challenges come with stringent requirements. For more information on how to take advantage of the coronavirus stimulus benefits, contact us. You may also register for our webinar, “Upcoming Filings: Managing Your Employment and Benefits, Tax, and Payroll Decisions” here, or visit our COVID-19 Resource Center for up-to-date information.
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