On December 27, President Trump signed legislation to fund the federal government for fiscal year 2021 and provide emergency COVID-19-related relief. Last week, President Trump stalled the legislation. The legislation provides another round of economic impact payments of $600 per person and extends unemployment insurance benefits. Here are some of the key payroll provisions.
Qualified Leave Tax Credits Extended
The Families First Coronavirus Response Act (FFCRA) generally requires employers with fewer than 500 employees to provide emergency paid sick leave and expanded family and medical leave to employees unable to work or telework due to certain COVID-19-related reasons (together, qualified leave). Eligible employers can get a refundable tax credit equal to the amount of the qualified leave wages, plus allocable qualified health plan expenses. The requirement to provide the qualified leave expires on December 31, 2020.
This legislation does not extend the requirement to provide qualified leave. However, the legislation does extend the tax credits. Employers that would have been required to provide qualified leave under the FFCRA if the requirement had not expired, are eligible for tax credits for providing qualified leave through March 31, 2021.
Employee Retention Credit Extended and Expanded
The Coronavirus Aid, Relief, and Economic Security (CARES) Act established an employee retention tax credit designed to encourage businesses to keep employees on their payrolls by allowing eligible employers to claim 50% of up to $10,000 in qualified wages paid by employers financially affected by COVID-19. Qualifying wages, including health plan expenses, are those paid after March 12, 2020, and before January 1, 2021.
This legislation extends the credit to qualified wages paid before July 1, 2021. The credit is increased to 70% of qualified wages for each quarter. The degree to which an eligible employer’s gross receipts must be reduced to qualify for the credit has been adjusted from 50% to 20%. The definition of a large employer is increased from 100 to 500 employees. Finally, an employer may receive a Paycheck Protection Program (PPP) loan and qualify for the tax credit so long as the wages taken into consideration for the tax credit are not paid with forgiven PPP loan proceeds.
Repayment Period for Deferred Employee Social Security Tax Extended
In Notice 2020-65, the IRS provided guidance on an employee social security tax deferral. Generally, employers may defer the withholding, deposit, and payment of the employee share of social security tax on wages paid between September 1, 2020, and December 31, 2020. Under the original guidance, employers that chose the deferral would then withhold the deferred amount from employees’ wages and compensation paid between January 1, 2021, and April 30, 2021, and make appropriate tax payments based on the withholding date. If the deferred amounts were not paid by April 30, 2021, the IRS would have assessed interest and penalties.
This legislation extends the repayment period to December 31, 2021. If the deferred amounts are not paid by December 31, 2021, penalties and interest on the unpaid amount will begin accruing on January 1, 2022.
Future Developments
Additional information on the payroll provisions in this legislation will be covered in the January issue of Payroll Currently, published on January 8, 2021.
To learn more about federal and state laws, regulations, and information to keep your company's payroll operations in compliance, check out Payroll Source Plus!Curtis E. Tatum, Esq., is Director of Federal Payroll Compliance for the APA.
