Summary and Q&A of Tax Implications of Coronavirus Bill
Here is a quick rundown regarding the tax implications of the Coronavirus bill. This Bill addresses the Phase I and Phase II provisions – it is anticipated that Phase III will address the stimulus payments being mentioned in the media.
It is important to note that these provisions apply to employers with fewer than 500 employees. There is language in the bill that gives the Department of Labor the authority to exempt employers with fewer than 50 employees. However, the Department of Labor has not issued those regulations and presumably will not be able to issue those regulations before some of these amounts will be payable to employees. For the time being we may need to assume that essentially all employers will be subjected to this mandate. There will obviously be more follow up after the President signs the bill and the IRS provides guidance.
Emergency Family Leave
- If an employee needs to stay home because a child isn’t in school due to Covid-19, it is now covered under FMLA
- The first 10 days can be unpaid or an employee uses PTO
- After that it must be paid leave with a max of $200/day or $10,000 total
- In effect through 2020
Emergency Sick Pay
- Private sector employers are required to provide paid sick leave of up to 80 hours to comply with isolation orders, self-quarantine, obtain medical diagnosis for coronavirus, care for some who is ill with coronavirus.
- Must be paid at least their normal wage – but only 2/3 pay when providing care to another individual or child
- Capped at $5,110 for worker’s illness/quarantine and $2,000 for care for another/child
- Employer couldn’t force the employee to use PTO prior to using the sick time
- In effect through 2020
Tax Credits to pay for these
- Refundable tax credits that are claimed on the Form 941
- Wages paid under the paid sick leave and family leave programs wouldn’t be subject to the employer payroll tax
- Credit is in effect through 2020
- Refundable credit of the same amounts against SE TAX if a self-employed person has to self-quarantine
What is the effective date?
The effective date is April 2, 2020. Employees can use the emergency sick leave beginning that day and can apply for expanded family leave that day.
Who qualifies for Emergency Sick Pay?
- The EMPLOYEE is subject to a Federal, State, or local quarantine or isolation order related to COVID–19. (this would not include business closures, even if mandated).
- The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID– 19 (self-imposed quarantine without medical advice does not qualify under the Act).
- The employee is experiencing symptoms of COVID– 19 and seeking a medical diagnosis.
- The employee is caring for an individual who is subject to a quarantine or isolation order as described in 1 or has been advised by a health care provider as described in 2.
- The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID–19 precautions.
- The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.
Are part-time employees included in the Emergency Sick Pay?
Yes. Part-time employees receive the equivalent of the number of hours they would work, on average, during a two-week period.
How do you calculate the rate of pay for commission employees?
Add all the compensation paid (Base pay plus commissions) and divide by total number of hours the person typically works.
Are payments to all employees included if a business voluntarily decides to close during the emergency?
If an employer “voluntarily” decides to close during the emergency, that does not trigger the relief provisions. Any “voluntary” closure safety measures taken by the employer, currently would be subject to a state’s unemployment rules/relief. Some states have adopted specific expedited employee unemployment relief. We are recommending that employers self-monitor and/or reach out to their specific state unemployment offices for guidance.
How do employers address this in payroll reporting?
The Department of Labor and Treasury Department are expected to issue regulations within 15 days to address the mechanics of implementing this law. We will update as guidance becomes available.