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NEW TAX CREDITS GIVE MONEY TO EMPLOYERS FOR COVID RELATED PAID LEAVE
The Families First Coronavirus Response Act provides tax credits to reimburse employers for the costs of providing paid sick leave and paid family and medical leave to employees unable to work because of the coronavirus (COVID-19). These credits are refundable. That means if the amount of the credit exceeds the amount of tax owed, the remainder is refunded to the business or organization.
The law is intended to allow employers to keep employees on their payrolls, while at the same time making sure employees aren’t forced to choose between their paychecks and public health measures needed to combat COVID-19.
These credits are available to eligible employers beginning April 1, 2020, for qualifying leave they provide between April 1, 2020, and Dec. 31, 2020.
Covered employers
Eligible employers are businesses and tax-exempt organizations with fewer than 500 full-time and part-time employees within the United States or any U.S. territory or possession and that have to meet employer paid leave requirements. The Questions and Answers and regulations issued by the U.S. Department of Labor have more information about the 500-employee threshold and the paid leave requirements.
The law allows equivalent credits for self-employed individuals in similar circumstances. For details, see specific provisions related to self-employed individuals in the COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs.
Paid sick leave requirement and credit
Employees of eligible employers who are unable to work or telework because they’re quarantined or experiencing COVID-19 symptoms and seeking a medical diagnosis can receive up to 80 hours of paid sick leave. This pay is at their regular rate of pay or, if higher, the applicable minimum wage, up to $511 per day and $5,110 in total.
Employees can receive up to 80 hours of paid sick leave at 2/3 of their regular pay or, if higher, the applicable minimum wage, up to $200 per day and $2,000 in total. Employees can receive this benefit if they need to care for:
- an individual subject to quarantine,
- a child whose school or place of care is closed, or
- a child whose child-care provider is unavailable,
due to COVID-19 or because they’re experiencing similar conditions as specified by the U.S. Department of Health and Human Services.
An employee is eligible for paid sick leave, regardless of length of employment.
The eligible employer is entitled to a fully refundable tax credit equal to the required paid sick leave wages. Eligible employers can also get an additional credit for the employer’s share of Medicare tax imposed on the qualfied sick leave wages and the cost of maintaining health insurance coverage for the employee during the sick leave period. The employer is not subject to the employer portion of Social Security tax on those wages.
Paid family and medical leave requirement and credit
In addition to the paid sick leave credit, an employee who is unable to work or telework 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 COVID-19, is entitled to paid family and medical leave equal to 2/3 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 toward the paid family leave credit.
An employee qualifies for paid family and medical leave if they’ve been on an employer’s payroll for 30 calendar days or more.
The eligible employer is entitled to a fully refundable tax credit equal to the required paid family leave wages. Eligible employers can also get an additional credit for the employer’s share of Medicare tax imposed on those wages and its cost of maintaining health insurance coverage for the employee during the family leave period. The eligible employer isn’t subject to the employer portion of Social Security tax on those wages.
Example
An employee’s child-care provider is unavailable indefinitely due to the COVID-19 outbreak, leaving the employee unable to work or telework because of the need to care for their child. For up to the first 80 hours of any period of leave to care for their child, the employee is entitled to qualified sick leave wages, up to $200 per day and $2,000 in total. After that, the employee is entitled to qualified family leave wages for up to 10 weeks of additional leave needed, up to $200 per pay and $10,000 in total.
How to claim the credits
Eligible employers report their total qualified leave wages and the related credits for each quarter on their federal employment tax return, usually Form 941, Employer’s QUARTERLY Federal Tax Return. They can receive the benefit of the credits by reducing their federal employment tax deposits for that quarter by the amount of the qualified leave wages, allocable qualified health plan expenses, and the employer’s share of Medicare tax on the wages. They’ll account for the reduction in deposits due to the leave credits on the Form 941 they file at the end of the quarter. The IRS recently posted Frequently Asked Questions about the ability both to reduce deposits for the credits and to defer the deposit of all of the employer’s portion of Social Security tax due before January 1, 2021 under a separate provision in the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
If employers don’t have enough federal employment taxes to cover the amount of the credits, after they have deferred deposits of employer Social Security taxes under the CARES Act as discussed in the Frequently Asked Questions, they may request an advance payment of the credits from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19. They may fax their completed forms to 855-248-0552.
Examples: An eligible employer is entitled to a credit of $5,000 for paying qualified sick leave wages and qualified family leave wages (and allocable health plan expenses) and is otherwise required to deposit $8,000 in federal employment taxes withheld from all of its employees for wage payments made during the same quarter as the $5,000 in qualified leave wages. The employer may keep up to $5,000 of the $8,000 of taxes it was going to deposit, and it will not owe a penalty for keeping the $5,000. The eligible employer will claim the credit and reflect the reduced liability for the $5,000 when it files Form 941.
An eligible employer is entitled to a credit of $10,000 for paying qualified leave wages (and allocable qualified health plan expenses) and is otherwise required to deposit $8,000 in federal employment taxes withheld from all of its employees on wage payments made during the same quarter. The employer can keep the entire $8,000 of taxes that it was otherwise required to deposit without penalties as a portion of the credits it is otherwise entitled to claim on Form 941. The employer may file a request for an advance credit for the remaining $2,000 by completing Form 7200.
Keep records to substantiate claims
Eligible employers claiming the credits must keep records and documentation supporting each employee’s leave. The COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs has more information about the documents needed to support the employee’s leave and the employer’s credit.
An employer should keep all employment tax records for at least four years.
The Questions and Answers issued by the U.S. Department of Labor have more information about the leave requirements.
REVIEW OF IRS RELIEF TO TAXPAYERS FACING COVID
Due to COVID-19, the IRS’ People First Initiative provides relief to taxpayers on a variety of issues from easing payment guidelines to delaying compliance actions. This relief is effective through the filing and payment deadline, Wednesday, July 15, 2020.
• Existing Installment Agreements – Under an existing Installment Agreement, payments due between April 1 and July 15, 2020 are delayed. Those currently unable to meet the terms of an Installment Payment Agreement or Direct Deposit Installment Agreement may cancel payments during this period with no default. By law, interest will continue to accumulate on any unpaid balances.
• New Installment Agreements – People who can’t pay all their federal taxes can establish a monthly payment agreement.
• Pending Offer in Compromise applications – Taxpayers have until July 15, 2020, to provide additional information for a pending OIC. The agency generally won’t close any pending OIC request before July 15 without the taxpayer’s consent.
• OIC payments – Taxpayers can delay all payments on accepted OICs until July 15, 2020. Interest may accrue, and missed payments are due when the suspension period ends. Taxpayers can call the number on their acceptance letter to address their needs.
• Delinquent return filings – The IRS will not default an OIC for taxpayers who are delinquent in filing their tax return for 2018. However, they should file any delinquent 2018 return and their 2019 return by July 15, 2020.
• Non-filers – More than 1 million households who haven’t filed tax returns in the last three years are owed refunds. The deadline to get refunds on 2016 tax returns is July 15, 2020. Those who owe taxes on delinquent returns may visit IRS.gov for payment options. The longer the debt is owed, the more penalties and interest accrue.
• Field collection activities – IRS stopped field revenue officer enforcement actions, such as liens and levies. Revenue officers will continue to pursue high-income non-filers and perform other similar activities where necessary.
• Automated liens and levies – IRS delayed issuing new automated and systemic liens and levies. Taxpayers experiencing a hardship due to a levy should reach out to their assigned IRS contact or fax their information to (855) 796-4524.
• Certifications to the State Department – IRS has delayed new certifications of taxpayers who are considered seriously delinquent. This affects a person’s ability to receive a new or renewed passport. Existing certifications will remain in place unless their tax situation changes.
• Private debt collection – IRS will not forward new delinquent accounts to private collection agencies during this period.
DID YOU GET YOUR ECONOMIC IMPACT CHECK OF $1200? DEADLINE WED 13TH
People must use Get My Payment by noon Wednesday, May 13 , for a chance to get their Economic Impact Payment by direct deposit. After noon Wednesday, the IRS will begin preparing to mail millions of additional payments to those who haven’t received one yet. Taxpayers can expect to receive these payments beginning in late May. People who use Get My Payment before the deadline can still take advantage of the direct deposit option. Get My Payment is available in English and Spanish.
Non-Filers tool is still available
For people not required to file a federal tax return, the Non-Filers: Enter Payment Info Here tool , available in English and Spanish, helps them submit basic information to have an Economic Impact Payment sent to their bank account. This tool is a free and easy option for those who don’t receive:
• Social Security retirement, survivor or disability benefits (SSDI)
• Railroad Retirement benefits
• Supplemental Security Income (SSI)
• VA Compensation and Pension (C&P)
Eligible taxpayers who filed tax returns for 2019 or 2018 will receive the payments automatically. Automatic payments are also being sent to those receiving Social Security retirement, disability benefits, Railroad Retirement benefits, Veterans Affairs benefits or Supplemental Security Income soon. More information : Economic Impact Payment Information Center
IRS and Treasury finalize Opportunity Zone guidance
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WASHINGTON — The Internal Revenue Service today issued final regulations providing details about investment in qualified opportunity zones (QOZ). The final regulations modified and finalized the proposed regulations that were issued on October 28, 2018 and May 1, 2019. The final regulations provide additional guidance for taxpayers eligible to make an election to temporarily defer the inclusion in gross income of certain eligible gain. The final regulations also address, the ability of such taxpayers’ eligibility to increase the basis in their qualifying investment equal to the fair market value of the investment on the date that it is sold, after holding the equity interest for at least 10 years. The statute permits the deferral of all or part of a gain that would otherwise be included in income, if corresponding amounts are invested into a qualified opportunity fund (QOF). The gain is deferred until an inclusion event or Dec. 31, 2026, whichever is earlier. The final regulations provide a list of inclusion events. Further, the final regulations provide guidance to determine the amount of income that must be included at the time of the inclusion event or December 31, 2026. The final regulations also address the various requirements that must be met to qualify as a QOF, as well as the requirements an entity must meet to qualify as a QOZ business. In order to provide clarity, the final regulations have modified the proposed regulations for QOFs and QOZ businesses. Specifically, the final regulations provide additional guidance on how an entity becomes a QOF or QOZ business, and the requirement that a QOF or QOZ business engage in a trade or business. The final regulations retain the general approach of the proposed regulations but provide additional guidance and clarity to the rules regarding QOZ business property. Related forms, instructions and other information taxpayers need to take advantage of this update will be made available in January 2020. For more information about this and other TCJA provisions, visit IRS.gov/taxreform |
Recent legislation requires tax-exempt organizations to e-file forms
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The Taxpayer First Act, enacted July 1, 2019, requires tax-exempt organizations to electronically file information returns and related forms. The new law affects tax-exempt organizations in tax years beginning after July 1, 2019.
The following IRS forms are included in the mandate:
Those who previously filed paper forms will receive a letter from the IRS informing them of the change. Filing deadlines vary by form type. The IRS will postpone the required e-filing of Form 990-EZ for one year, while optional e-filing continues to be available. Although Forms 990-T and 4720 will come under the e-filing requirement next year, the IRS will continue to accept these forms on paper pending conversion to electronic format. Form 8872 Among other requirements, most tax-exempt political organizations have a requirement to file semiannual, quarterly or monthly reports on Form 8872. To file electronically, the organization must have the username and password it received from the IRS after electronically filing its initial notice (Form 8871). Organizations can file electronically using the IRS website at IRS.gov/polorgs. To replace a username or password, please contact: IRS Form 990 & 990-PF E-filing Under the legislation, most e-filings won’t be due before Dec. 15, 2020, from charities and other exempt organizations that generally file Form 990 or 990-PF by the 15th day of the 5th month after the tax year-end. In other words, Forms 990 and 990-PF with tax years ending July 31, 2020, and later MUST be filed electronically. Forms 990 and 990-PF filings for tax years ended on or before June 30, 2020, may still be on paper. In the case of a short tax year or certain other circumstances detailed in the 990 or 990-PF Instructions, the IRS will continue to accept paper filing as its systems are yet unable to receive these forms electronically. More information on software providers is available at https://www.irs.gov/e-file-providers/exempt-organizations-mef-providers. Form 990-EZ Transition Relief For small exempt organizations, the legislation specifically allowed a postponement (“transitional relief”). For tax years ending on or before July 31, 2020, the IRS will accept either paper or electronic filing of Form 990-EZ, Short Form Return of Organization Exempt from Income Tax. For tax years ending Aug. 31, 2020, and later, Forms 990-EZ must be filed electronically. Generally, Form 990-EZ is for organizations with annual gross receipts less than $200,000 and total assets at tax year-end less than $500,000. Paper Forms 990-T & 4720 In 2020, the IRS will continue to accept paper forms. These include Form 990-T, Exempt Organization Business Income Tax Return, and Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code. The IRS plans to have these returns ready for e-filing in 2021 (reporting on tax year 2020). Pre-existing E-file Rules In effect, the legislation supersedes the pre-existing e-file regulation for large exempt organizations. Until tax years beginning after July 1, 2019, exempt organizations with total assets of $10 million or more at tax year-end that had filed 250 or more returns of any type during the calendar year were required to e-file Forms 990 and 990-PF. E-filing was also required of Form 8872 filers that had or expected more than $50,000 of contributions or expenditures in the calendar year. These prior rules will continue to apply to some e-filings made in 2020. Form 1065 E-filing For most Section 501(d) apostolic organizations which use Form 1065, the e-filing legislation won’t apply to returns due before Oct. 15, 2020. Generally, the Form 1065 deadline is the 15th day of the 3rd month after the tax year-end. Appropriate software is offered by the providers listed on the IRS 1065 MeF Providers web-site. Taxpayer First Act The Taxpayer First Act aims to expand and strengthen taxpayer rights and to reform the IRS into a more taxpayer friendly agency. The legislation requires the agency to develop a comprehensive customer service strategy, modernize its technology and enhance its cyber security. More information on the Taxpayer First Act is available at IRS.gov. |
