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COVID-19 Credits, PPP Fund Returns, and Other Important Information

Due to the recent guidelines published by the IRS regarding the PPP loan, many organizations are considering returning the funds they have received. If an organization decides that they will be giving the money back to the banks, there are several credits that are available for organizations to take advantage of right now. Here are some details on the payroll credits available and details on Form 7200:

Employee Retention Credit

The Employee Retention Credit is a refundable tax credit against certain employment taxes equal to 50 percent of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. Eligible employers can get immediate access to the credit by reducing employment tax deposits they are otherwise required to make. Also, if the employer's employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the IRS. This credit cannot be obtained if the company is using the PPP loan.

For each employee, wages (including employer portion of health insurance) up to $10,000 can be counted to determine the amount of the 50% credit (Maximum of $5,000 per employee).

Employers, including tax-exempt organizations, are eligible for the credit if they operate a trade or business during calendar year 2020 and experience either:

1.) The full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders (includes stay at home orders) limiting commerce, travel, or group meetings due to COVID-19,

Type of Business

Do I Qualify for the Employee Retention Credit?

I have a non-essential business where my operations were fully or partially suspended due to government order. YES
I have an essential business where my operations were fully or partially suspended due to government order.

There is a significant decline* in my gross receipts - YES

There is NOT a significant decline* in my gross receipts - NO

I have an essential business where my operations were effected due to my supplier being shut down by a government order where as I could not obtain deliveries of critical goods or materials to produce my product. YES
I have an essential business but due to a government order, my customers are not using my services as much.

There is a significant decline* in my gross receipts - YES

There is NOT a significant decline* in my gross receipts - NO

I have a non-essential business where my workplace is forced to close by a government order but the employer is able to continue operations comparable to its operations prior to the closure by requiring its employees to telework.

There is a significant decline* in my gross receipts - YES

There is NOT a significant decline* in my gross receipts - NO

I have a retail business which is forced to close its storefront locations due to a governmental order. My retail website for this business can stay open and fulfill the orders unaffected by the government order. YES
I have a restaurant business which must close the restaurant location to in-room dining due to a government order closing all restaurants, bars and similar establishments for sit-down service. I can continue to sell food or beverages to the public for carry-out, drive-through and delivery basis. YES
I have a business that reduces its operating hours due to a governmental order. YES

OR

2.) A significant decline in gross receipts.

A significant decline in gross receipts begins:
  • On the first day of the first calendar quarter of 2020 for which an employer’s gross receipts are less than 50% of its gross receipts for the same calendar quarter in 2019.
The significant decline in gross receipts ends:
  • On the first day of the first calendar quarter following the calendar quarter in which gross receipts are more than of 80% of its gross receipts for the same calendar quarter in 2019.

The definition of qualified wages depends on how many employees an eligible employer has.

If an employer averaged more than 100 full-time employees during 2019, qualified wages are generally those wages, including certain health care costs, (up to $10,000 per employee) paid to employees that are not providing services because operations were suspended or due to the decline in gross receipts. These employers can only count wages up to the amount that the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship.

If an employer averaged 100 or fewer full-time employees during 2019, qualified wages are those wages, including health care costs, (up to $10,000 per employee) paid to any employee during the period operations were suspended or the period of the decline in gross receipts, regardless of whether or not its employees are providing services. Reminder the period for this is after March 12, 2020, and before January 1, 2021.

The credit reduces any federal taxes that should be deposited with each pay period. If the credit is higher then the federal taxes that should be deposited for the pay period, the employer can request an advance using Form 7200.

Family Leave and Sick Pay

The Families First Coronavirus Response Act requires certain employers to provide their employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19.

The Act provides that covered employers must provide to all employees:

  1. Two weeks (up to 80 hours) of paid sick leave at the employee’s regular rate of pay where the employee is unable to work because the employee is quarantined (pursuant to Federal, State, or local government order or advice of a health care provider), and/or experiencing COVID-19 symptoms and seeking a medical diagnosis; or
  2. Two weeks (up to 80 hours) of paid sick leave at two-thirds the employee’s regular rate of pay because the employee is unable to work because of a bona fide need to care for an individual subject to quarantine (pursuant to Federal, State, or local government order or advice of a health care provider), or care for a child (under 18 years of age) whose school or child care provider is closed or unavailable for reasons related to COVID-19, and/or the employee is experiencing a substantially similar condition as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of the Treasury and Labor.

A covered employer (Under 500 employees) must provide to employees that it has employed for at least 30 days:

Up to an additional 10 weeks of paid expanded family and medical leave at two-thirds the employee’s regular rate of pay where an employee is unable to work due to a bona fide need for leave to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.

Small businesses with fewer than 50 employees may qualify for exemption from the requirement to provide leave due to school closings or child care unavailability if the leave requirements would jeopardize the viability of the business as a going concern.

COVID-19 Credits

Qualifying Reasons for Leave:

Under the FFCRA, an employee qualifies for paid sick time if the employee is unable to work (or unable to telework) due to a need for leave because the employee:

  1. Is subject to a Federal, State, or local quarantine or isolation order related to COVID-19
  2. Has been advised by a health care provider to self-quarantine related to COVID-19
  3. Is experiencing COVID-19 symptoms and is seeking a medical diagnosis
  4. Is caring for an individual subject to an order described in 1 or 2 above
  5. Is caring for a child whose school or place of care is closed for reasons related to COVID-19
  6. Is experiencing any other substantially-similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.

Duration of Leave:

For reasons 1-4 and 6: A full-time employee is eligible for up to 80 hours of leave, and a part-time employee is eligible for the number of hours of leave that the employee works on average over a two-week period.

For reason 5: A full-time employee is eligible for up to 12 weeks of leave at 40 hours a week, and a part-time employee is eligible for leave for the number of hours that the employee is normally scheduled to work over that period.

Calculation of Pay:

For leave reasons 1, 2, 3: Employees taking leave shall be paid at either their regular rate or the applicable minimum wage, whichever is higher, up to $511 per day and $5,110 in the aggregate (over a 2-week period).

For leave reasons 4 or 6: Employees taking leave shall be paid at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $2,000 in the aggregate (over a 2-week period).

For leave reason 5: Employees taking leave shall be paid at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $12,000 in the aggregate (over a 12-week period—2 weeks of paid sick leave followed by up to 10 weeks of paid expanded family and medical leave).

The credit equals the total gross FMLA or SP paid to the employee plus the employer cost of health insurance. The credit reduces any federal taxes that should be deposited with each pay period. If the credit is higher then the federal taxes that should be deposited for the pay period, the employer can request an advance using form 7200.

Advance Payment of Employer Credits – Form 7200

Who May File Form 7200?

Employers that file Form(s) 941, 943, 944, or CT-1 may file Form 7200 to request an advance payment of the tax credit for qualified sick and family leave wages and the employee retention credit. You will need to reconcile any advance credit payments and reduced deposits on your employment tax return(s) that you will file for 2020. No employer is required to file Form 7200. As described earlier under Background, instead of filing Form 7200, you should first reduce your employment tax deposits to account for the credits. You can request the amount of the credit that exceeds your reduced deposits by filing Form 7200 or waiting to get a refund when you claim the credits on your employment tax return.

When May You File?

You can file the form for an advance payment of the credits anticipated for a quarter at any time before the end of the month following the quarter in which you paid the qualified wages. If necessary, you can file Form 7200 several times during each quarter. Don’t file Form 7200 after you file Form 941 for the fourth quarter of 2020, or file Form 943, 944, or CT-1 for 2020. Don’t file the form to request an advance payment for any anticipated credit for which you already reduced your deposits. How To File? Fax your completed form to 855-248-0552.

Recordkeeping

Keep all records of employment taxes for at least 4 years. These should be available for IRS review. Your records should include the following information.

Delay of Payment of Employer Payroll Taxes

In addition to the credits above, this provision would allow taxpayers to defer paying the employer portion of Social Security taxes through the end of 2020. Payroll taxes that can be deferred include the employer portion of FICA taxes, the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer FICA rate), and half of SECA tax liability (Self-Employment Tax).

The deferred deposits of the employer's share of Social Security tax must be deposited by the following dates to be treated as timely (and avoid a failure to deposit penalty):

  1. On December 31, 2021, 50% of the deferred amount; and
  2. On December 31, 2022, the remaining amount.

Federal 941

The IRS recently released an early draft of the new Federal 941. We will be closely monitoring changes on the form and releasing information as it becomes available. We are two months away from quarter end and many things may change.

Questions?

We are actively monitoring the COVID-19 (Coronavirus) situation and will continue to share important details as they become available. Please do not hesitate to reach out at any time using the Contact Us form.

If you need immediate assistance please call us directly at 847-956-1040.

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