Due to the recent guidelines published by the IRS regarding the PPP loan, many organizations are considering returning the funds they have received. If an organization decides that they will be giving the money back to the banks, there are several credits that are available for organizations to take advantage of right now. Here are some details on the payroll credits available and details on Form 7200:
The Employee Retention Credit is a refundable tax credit against certain employment taxes equal to 50 percent of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. Eligible employers can get immediate access to the credit by reducing employment tax deposits they are otherwise required to make. Also, if the employer's employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the IRS. This credit cannot be obtained if the company is using the PPP loan.
For each employee, wages (including employer portion of health insurance) up to $10,000 can be counted to determine the amount of the 50% credit (Maximum of $5,000 per employee).
Employers, including tax-exempt organizations, are eligible for the credit if they operate a trade or business during calendar year 2020 and experience either:
1.) The full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders (includes stay at home orders) limiting commerce, travel, or group meetings due to COVID-19,
2.) A significant decline in gross receipts.
A significant decline in gross receipts begins:
The significant decline in gross receipts ends:
The definition of qualified wages depends on how many employees an eligible employer has.
If an employer averaged more than 100 full-time employees during 2019, qualified wages are generally those wages, including certain health care costs, (up to $10,000 per employee) paid to employees that are not providing services because operations were suspended or due to the decline in gross receipts. These employers can only count wages up to the amount that the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship.
If an employer averaged 100 or fewer full-time employees during 2019, qualified wages are those wages, including health care costs, (up to $10,000 per employee) paid to any employee during the period operations were suspended or the period of the decline in gross receipts, regardless of whether or not its employees are providing services. Reminder the period for this is after March 12, 2020, and before January 1, 2021.
The credit reduces any federal taxes that should be deposited with each pay period. If the credit is higher then the federal taxes that should be deposited for the pay period, the employer can request an advance using Form 7200.
The Families First Coronavirus Response Act requires certain employers to provide their employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19.
The Act provides that covered employers must provide to all employees:
A covered employer (Under 500 employees) must provide to employees that it has employed for at least 30 days:
Up to an additional 10 weeks of paid expanded family and medical leave at two-thirds the employee’s regular rate of pay where an employee is unable to work due to a bona fide need for leave to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.
Small businesses with fewer than 50 employees may qualify for exemption from the requirement to provide leave due to school closings or child care unavailability if the leave requirements would jeopardize the viability of the business as a going concern.
Under the FFCRA, an employee qualifies for paid sick time if the employee is unable to work (or unable to telework) due to a need for leave because the employee:
For reasons 1-4 and 6: A full-time employee is eligible for up to 80 hours of leave, and a part-time employee is eligible for the number of hours of leave that the employee works on average over a two-week period.
For reason 5: A full-time employee is eligible for up to 12 weeks of leave at 40 hours a week, and a part-time employee is eligible for leave for the number of hours that the employee is normally scheduled to work over that period.
For leave reasons 1, 2, 3: Employees taking leave shall be paid at either their regular rate or the applicable minimum wage, whichever is higher, up to $511 per day and $5,110 in the aggregate (over a 2-week period).
For leave reasons 4 or 6: Employees taking leave shall be paid at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $2,000 in the aggregate (over a 2-week period).
For leave reason 5: Employees taking leave shall be paid at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $12,000 in the aggregate (over a 12-week period—2 weeks of paid sick leave followed by up to 10 weeks of paid expanded family and medical leave).
The credit equals the total gross FMLA or SP paid to the employee plus the employer cost of health insurance. The credit reduces any federal taxes that should be deposited with each pay period. If the credit is higher then the federal taxes that should be deposited for the pay period, the employer can request an advance using form 7200.
Employers that file Form(s) 941, 943, 944, or CT-1 may file Form 7200 to request an advance payment of the tax credit for qualified sick and family leave wages and the employee retention credit. You will need to reconcile any advance credit payments and reduced deposits on your employment tax return(s) that you will file for 2020. No employer is required to file Form 7200. As described earlier under Background, instead of filing Form 7200, you should first reduce your employment tax deposits to account for the credits. You can request the amount of the credit that exceeds your reduced deposits by filing Form 7200 or waiting to get a refund when you claim the credits on your employment tax return.
You can file the form for an advance payment of the credits anticipated for a quarter at any time before the end of the month following the quarter in which you paid the qualified wages. If necessary, you can file Form 7200 several times during each quarter. Don’t file Form 7200 after you file Form 941 for the fourth quarter of 2020, or file Form 943, 944, or CT-1 for 2020. Don’t file the form to request an advance payment for any anticipated credit for which you already reduced your deposits. How To File? Fax your completed form to 855-248-0552.
Keep all records of employment taxes for at least 4 years. These should be available for IRS review. Your records should include the following information.
In addition to the credits above, this provision would allow taxpayers to defer paying the employer portion of Social Security taxes through the end of 2020. Payroll taxes that can be deferred include the employer portion of FICA taxes, the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer FICA rate), and half of SECA tax liability (Self-Employment Tax).
The deferred deposits of the employer's share of Social Security tax must be deposited by the following dates to be treated as timely (and avoid a failure to deposit penalty):
The IRS recently released an early draft of the new Federal 941. We will be closely monitoring changes on the form and releasing information as it becomes available. We are two months away from quarter end and many things may change.
We are actively monitoring the COVID-19 (Coronavirus) situation and will continue to share important details as they become available. Please do not hesitate to reach out at any time using the Contact Us form.
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