Blog

This week the Coronavirus Response Act will be signed into legislation. Establishing paid leave for employees and offsetting tax credits to employers.

What it does

Employers will be required to pay their employees affected by the coronavirus. Either through illness or quarantine related measures.

The government will be offsetting this cost through payroll tax credit or refund.

The Details

Employees of companies with less than 500 employees can take up to 14 weeks of job protected leave.

The first two weeks, employees are paid full salaries(included in FMLA). The next 12 weeks must be paid no less than two thirds of the employee’s standard pay.

How the employer gets paid back by the government

At the end of each quarter, the IRS will be offering credits against payroll taxes. The credit is calculated based on qualified sick wages.

Qualified wages are broken into two buckets.

Bucket one – you are directly impacted through illness or quarantine. You may need to self-isolate, get a diagnosis, or comply with self-isolation.

Bucket two – you need to stay at home to care for a family member or you child is home due to school closures.

The daily wages taken into account for the credit is capped at $511 per day for employees who fall into Bucket #1. For Bucket #2, wages taken into account is capped at $200 per day.

Example

• An employee needs to stay home for the month due to quarantine and can not work.
• This employee makes $70,000/year.
• A month of their salary equals $6,250 with a daily rate of $208.33 (assuming 30-day month)

You would pay them $208.33 per day for the first two weeks. The next 16 days, you could pay $139.58 per day (two thirds of their normal rate). However, I assume most employers would look to avoid decreasing salaries given the payroll tax offset credit.

The full monthly salary $6,250 would be eligible for the credit of your company’s payroll liability. If your credit amount is greater than your company’s payroll tax liability, you are eligible to take that as a refund.

What if you’re self-employed?

Same metrics apply. You’ll be eligible up to a $511 tax credit per day you are affected. The eligible wages will be calculated based on the average daily self-employment related income. Since you are not running a payroll, any credit would apply to your income tax. You may look to lower early quarter 2020 estimated taxes to reflect the possible income tax credit and/or lower 2020 income.

So what does this all mean?

If you employees cannot work due to coronavirus related illness or quarantine related measures, you can still pay them for over 3 months. The government will be footing (most of) the bill.

However, you may need to bridge the gap between payroll and the end of the quarter. This is a time to draw on your line of credit or restructure your pay.

The legislation is still developing, and we all know the hiccups that come with government change. More is to come out on record-keeping and what is needed around that. I’ll be updating here as direction clears up.