Impacts to FFCRA, Employee Retention Credit and Payroll Tax Deferral Programs
On Sunday, December 27, President Trump signed the COVID Relief and Government Funding Bill into law. This bill impacts employers’ ability to utilize the sick and emergency leave tax credits provided by the Families First Coronavirus Relief Act (FFCRA), employee retention credits through the CARES Act, and to defer employee payroll taxes. PayNW can help you address each of these areas according to your organization’s specific needs.
Families First Coronavirus Relief Act
The FFCRA mandate is still set to expire on 12/31/2020. Employers with fewer than 500 employees will no longer be required to offer sick leave to employees impacted by COVID-19. However, if you choose to continue offering this leave to your employees, then you can continue taking the credit against your Federal taxes through 3/31/2021.
How can we help?
If you asked us to set up the FFCRA leave management codes for you in 2020 and you would like to continue making them available for your employees through first quarter 2021 then you do not need to do anything. The codes will continue to be there for your employees to use and the appropriate tax credits will continue to calculate. It still is your responsibility to ensure that you do not exceed leave daily or annual limits. The system will not automatically reduce the maximum annual benefit if an employee receives FFRCA leave in both 2020 and 2021.
If you asked us to set up the FFCRA codes for you and you do not want to continue offering this leave to your employees, please email your CSR at email@example.com and request they be turned off. Once this is complete your employees will no longer be able to take paid time off against these codes.
Employee Retention Credit
The CARES Act Employee Retention Credit (ERC) received a total overhaul in the latest COVID Bill. The changes impact the credit going forward in 2021, as well as how it is calculated retroactively for 2020. The most significant change to both scenarios is that PPP loan forgiveness is no longer a disqualifier for the ERC credit. Employers can now (carefully) utilize both programs.
2021 – The ERC has been expanded to cover 70% of qualified wages up to $10,000, giving employers up to $7,000 per quarter for the first two quarters of 2021. The employer size has been updated to be anyone smaller than 500 employees (it was 100 in 2020) and the qualifications have been modified a bit. You can qualify for the 2021 ERC credit in one of two ways:
- Your business was partially or fully shut down due to government orders
- Your business suffered a decline of 20% or more in gross receipts when compared to the same quarter of 2019. For 2021 only, you can use the receipts from the prior quarter compared to current quarter 2019. For example, if Q4 2020 gross receipts are less than 80% of Q1 2019 then you would qualify for ERC in Q1 2021.
2020 – Employers who qualified for ERC but chose to take the PPP loan instead can now go back and request the ERC credit for 2020. There are a lot of moving parts used to calculate the retroactive ERC amount. For example, no wages paid via the PPP loan proceeds can be used to calculate ERC Credit, and the work status of the employees during the time of shutdown or revenue drop affects the calculation of credit eligibility. Also, wages that qualify for credit depend on whether your business is over or under 100 employees. It is best to work with your accountant or financial advisor to determine what, if any, ERC credit you can claim for 2020.
How can we help?
2021 ERC – If you qualify for ERC in Q1 2021 please fill out this form and PayNW will calculate the credit for the affected payroll.
2020 Retro ERC – If you qualify now that the PPP loan restriction has been lifted please work with your accountant or financial advisor to determine the amount of credit you are owed for each quarter of 2020. Once you identify those numbers send them to us via email at firstname.lastname@example.org and we will complete and submit the amended returns to trigger a refund from the IRS. Please note that the amended return fee of $150 per quarter will apply.
Deferral of employee payroll taxes
The Presidential Memorandum issued in August allowing for deferral of employee portion of Social Security tax through the end of the year originally had a payback period of 1/1/2021 through 4/30/2021. The COVID Bill extends the repayment period through 12/31/2021.
How we can help?
We will be reaching out to all clients who elected to defer this tax on behalf of their employees to identify a payback plan that works best for their employees and stays within the new guidelines.