As 2020 comes to a close, it’s time for business owners to take into account how the pandemic has impacted operations this year.
Many businesses had staff who missed work due to quarantine, their own COVID-19 illness, or caregiver responsibilities. Those businesses may qualify for two new employer tax credits:
- Credit for Sick and Family Leave
- Employee Retention Credit
The information below from the Internal Revenue Service website describes the credits.
Sick and Family Leave
Credit for Sick and Family Leave
An employee who is unable to work (including telework) because of coronavirus quarantine or self-quarantine or has coronavirus symptoms and is seeking a medical diagnosis, is entitled to paid sick leave for up to 10 days (up to 80 hours) at the employee’s regular rate of pay, or, if higher, the federal minimum wage or any applicable state or local minimum wage, up to $511 per day, but no more than $5,110 in total.
Caring for Someone with Coronavirus
An employee who is unable to work due to caring for someone with coronavirus, or caring for a child because the child’s school or place of care is closed or the paid child care provider is unavailable due to the coronavirus, is entitled to paid sick leave for up to two weeks (up to 80 hours) at two-thirds the employee’s regular rate of pay or, if higher, the federal minimum wage or any applicable state or local minimum wage, up to $200 per day, but no more than $2,000 in total.
Care for Children Due to Daycare or School Closure
An employee who is unable to work because of a need to care for a child whose school or place of care is closed or whose child care provider is unavailable due to the coronavirus, is also entitled to paid family and medical leave equal to two-thirds of the employee’s regular pay, up to $200 per day and $10,000 in total.
Up to 10 weeks of qualifying leave can be counted towards the family leave credit.
Credit for Eligible Employers
Eligible employers are entitled to receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and the employer’s share of Medicare tax on the leave, for the period of April 1, 2020, through Dec. 31, 2020.
The refundable credit is applied against certain employment taxes on wages paid to all employees.
Eligible employers can reduce federal employment tax deposits in anticipation of the credit. They can also request an advance of the paid sick and family leave credits for any amounts not covered by the reduction in deposits.
Employee Retention Credit
Eligible employers can claim the employee retention credit, a refundable tax credit equal to 50% of up to $10,000 in qualified wages (including health plan expenses), paid after March 12, 2020, and before Jan. 1, 2021.
Eligible employers are those businesses with operations that have been partially or fully suspended due to governmental orders due to COVID-19, or businesses that have a significant decline in gross receipts compared to 2019.
The refundable credit is capped at $5,000 per employee and applies against certain employment taxes on wages paid to all employees.
The ASBTDC does not give tax advice. The information in this post is from the IRS. Please consult your tax advisor.
