United States

The Federal Government responds to the COVID-19 Virus

TAX ALERT  | 

President declares National State of Emergency

On Friday, the President declared a state of emergency for the United States and its territories, which allows for the availability of federal funds and allows the Secretary of the Treasury to specify a period of up to one year that certain due dates may be disregarded including filings and payments. Section 7508A give the Secretary of the Treasury the authority to suspend interest, penalties, additional amounts or additions to tax. This authority also applies to the amount of any credit or refund.

The Secretary issued a brief statement on Saturday indicating that employers will be able to use cash deposited with the IRS to pay sick leave wages and that for businesses that would not have sufficient taxes to draw from, Treasury will use its regulatory authority to make advances to small businesses to cover such costs. Official guidance on these issues remains to be forthcoming.

House of Representatives passes The Families First Coronavirus Response Act

Early Saturday, March 14, 2020, the House of Representatives passed The Families First Coronavirus Response Act (The Act) with bipartisan, Treasury and White House support. The Act builds on the $8.3 billion emergency coronavirus spending package enacted into law on March 6, 2020. Technical refinements to the Act are expected to be finalized shortly and a vote in the Senate is expected this week.  

Employer Tax Credits:  The funding for sick pay under the Act focuses on tax benefits provided to employers in the form of tax credits. 

A refundable tax credit is allowed for 100% of qualified paid sick leave wages paid by an employer for each calendar quarter. This tax credit is allowed against the employer’s portion of Social Security taxes under section 3111(a) of the Code. 

  • Qualified paid sick leave is defined as sick leave wages paid with respect to employees who must self-isolate, have obtained a diagnosis or comply with a self-isolation recommendation with respect to coronavirus.  
  • This credit amount is based on the employee’s own compensation but is capped at $511 per day for each employee. Qualified paid sick leave also includes to amounts paid with respect to employees caring for a family member or for a child whose school or place of care has been closed, but at a reduced amount. This credit amount is capped at $200 per day for each employee.
  • The aggregate number of days taken into account per employee is limited. It may not exceed the excess of 10 over the aggregate number of days taken into account for all preceding calendar quarters.  In other words, the credit is allowed quarterly, but it may not exceed 10 days of qualified paid sick leave in total for the year.
  • To prevent a double benefit, no deduction is allowed for the amount of the credit.  
  • No credit is allowed for qualified paid sick leave wages if those wages receive the credit allowed under section 45S of the Code.
  • The Act gives the Secretary of the Treasury broad authority to issue regulations and guidance necessary to issue regulations and guidance to carry out the purposes of these provisions.

This credit also applies to 100% of a qualified sick leave equivalent amount for eligible self-employed individuals who must self-isolate, who have obtained a diagnosis, or must comply with a self-isolation recommendation with respect to coronavirus.

  • As above, the credit under these circumstances is capped at the lesser of $511 per day or the average daily self-employment income for the taxable year per day.
  • For eligible self-employed individuals caring for a family member or for a child whose school or place of care has been closed due to coronavirus, the credit is capped at the lesser of $200 per day (or, in some situations 67% of the average daily self-employment income for the taxable year.)
  • A self-employed individual must maintain certain documentation to establish his or her eligibility for the credit.
  • In calculating the qualified sick leave equivalent amount, the eligible self-employed individual may only take into account those days that the individual is unable to work for the reasons that would entitle the individual to receive paid leave under the Act.
  • To prevent a double benefit, the qualified sick leave equivalent amount is proportionally reduced for any days that the individual also receives qualified sick leave wages from an employer.
  • The Act gives the Secretary of the Treasury broad authority to issue regulations and guidance necessary to issue regulations and guidance to carry out the purposes of these provisions.

Sick Leave:  The Act establishes an Emergency Paid Sick Leave Program to fund compensation paid to employees for lost wages because of self-quarantine, required quarantine and caregiving to at-risk family members and others under certain circumstances. The funding expires on Dec. 31, 2020.  

Employees of employers with fewer than 500 employees are entitled to two weeks of paid sick leave. Note that employees of employers with fewer than 500 employees may also be eligible to take up to 12 weeks of job-protected unpaid leave under the FMLA if certain criteria are met, discussed later in this alert. The sick leave under the Act applies to employees for: 

  • the compliance with a requirement or recommendation to quarantine due to exposure or symptoms of coronavirus;
  • the care of an at-risk family member who is adhering to a requirement or recommendation to quarantine due to exposure to coronavirus; and
  • the care of a child of an employee if the child’s school or place of care has been closed or the child care provider is unavailable due to coronavirus.

Full-time employees who are quarantined due to exposure or symptoms of coronavirus are entitled to two weeks (80 hours) of paid sick leave and part time employees are entitled to the typical number of hours that they work in a typical two-week period. Employees who take sick leave to care for a family member who is quarantined due to exposure or symptoms or to care for a child whose school has closed, or whose child care provider is unavailable, due to coronavirus will receive no less than 2/3 of the employee’s usual pay. The paid sick leave program will also apply to employees who work under a multiemployer collective agreement and whose employers pay into a multiemployer plan. 

Expanded FMLA:  The Act expands the Family and Medical Leave Act and provides a tax credit equal to 100% of qualified family leave wages paid by an employer for each calendar quarter. The Act applies to employers with fewer than 500 employees and to government employers. To be eligible for the credit, the employees must have been on the job for at least 30 days. The Act provides up to 12 weeks of job-protected leave under the FMLA to be used for any of the following reasons:

  • to adhere to a requirement or recommendation to quarantine due to exposure to or symptoms of coronavirus;
  • to care for an at-risk family member who is adhering to a requirement or recommendation to quarantine due to exposure to or symptoms of coronavirus; and
  • to care for a child of an employee if the child’s school or place of care has been closed, or the child-care provider is unavailable, due to coronavirus.  
  • After two weeks of paid leave, employees will receive a benefit that will be no less than two-thirds of the employee’s usual pay.
  • The Act also applies to employees who are provided leave and who work under a multiemployer collective agreement where the employers pay into the multiemployer plan. 

Free Corona Virus Testing:  The Act provides for free testing for coronavirus for all individuals including those who are uninsured and those with private insurance, Medicare, Medicare Advantage, Medicaid, CHIP, VA, FEHBP and TRICARE.  

Food and Nutrition Program:  It also includes more than $1 billion for food assistance to low-income pregnant women and mothers with young children. Food banks also receive funding for programs that provide meals to seniors. Students’ access to school meals is also funded but with some limitations. Funding for Medicaid programs provided to states and territories will be increased and protected from state cuts. The language also allows the government to provide some of these benefits through the EBT cards and waives certain requirements that may require people to eat at school or go in person to receive certain benefits. Some of the funding may be provided to food banks.

Employment Security Funding:  The Act ensures employment security through resources and flexibility allocated to the states to provide unemployment benefits to workers who are laid off or furloughed. States will receive funding for staffing, technology, systems and other administrative costs, so long as they met basic requirements that ensure access to earned benefits for eligible workers. Approximately $500 million is available for states to provide emergency grants to states that experience at least a 10% increase in unemployment. Another $500 million is available to provide administrative services to states.

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