New Tax Credit Opportunities for Employers Impacted by COVID-19

To help employers contend with the uncertainty and challenges brought on by the COVID-19 outbreak, recent legislation has made new relief opportunities available. We outline the details of three of these opportunities—the employee retention tax credit (ERTC), the paid sick leave credit, and the paid family leave credit below.

Employee Retention Tax Credit (ERTC)

As part of H.R. 748, Coronavirus Aid, Relief and Economic Security Act (CARES), beginning March 12, 2020, eligible employers may generate a tax credit used to offset their employment taxes, and apply for a refund for any excess credit generated.

Who Is Eligible

Employers, including tax-exempt employers, that meet one of the following conditions:

  • Had business fully or partially suspended due to emergency orders from an appropriate government authority limiting commerce, travel or group meetings
  • Had gross receipts for the 2020 calendar quarter that are less than 50% of gross receipts for the same calendar quarter in 2019

For employers with under 100 full-time employees, measured as average employment in 2019, the credit applies to wages paid to all employees. For employers with more than 100 full-time employees, the credit only applies to wages paid to employees who aren’t providing services.  This may include the excess of wages paid to an employee who is paid full-time wages but only working part-time hours.

Calculating the Credit

The credit is equal to 50% of wages paid to an employee after March 12, 2020, in each qualifying calendar quarter, up to a total of $10,000 for all quarters, per employee.  The maximum credit may be worth up to $5,000 per eligible employee.

The credit expires at the earlier of when the full $10,000 is used up or when gross receipts for a quarter in 2020 are above 80% of gross receipts for the same quarter in 2019.

Qualified wages, for purposes of this program, include qualified health plan expenses incurred by the employer.

Other Guidelines

ERTC can’t be used in conjunction with the Paycheck Protection Program loans, or use the same wages for calculating the paid leave credits or the work opportunity tax credit (WOTC).

Paid Leave Credits for Small Businesses

As part of H.R. 6201, Families First Coronavirus Response Act, that was signed into law on March 18th, 2020, two refundable payroll tax credits became available to small employers as part of a mandated two-week paid leave policy.

Who Is Eligible

Small employers with less than 500 full-time and part-time employees whose employees couldn’t work for any of the following reasons:

  • To adhere to a federal, state, or local quarantine or isolation order, or advised by a health care provider to self-quarantine for obtaining a diagnosis of COVID-19
  • To care for an at-risk family member who was adhering to a requirement or recommendation to quarantine due to exposure to or symptoms of COVID-19
  • 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 COVID-19

Beginning April 1, 2020, eligible employers may generate a tax credit used to offset their employment taxes, including withholding federal income taxes, and the employee and employer share of Social Security and Medicare taxes with respect to all employees and apply for a refund for any excess credit generated.

Paid Sick Leave Credit

For employees who must self-isolate or those who obtain a diagnosis, as described in the previous section, employers may generate a credit, per employee, for qualified sick wages paid at 100% rate of normal pay, but capped at $511 per day, for up to an aggregate total of 10 days or $5,110 in wages.

For employees who need to care for a family member or child, employers may generate a credit, per employee, for qualified sick wages paid at 2/3 rate of normal pay, but capped at $200 per day, for up to an aggregate total of 10 days or $2,000.

Paid Family Leave Credit

For employees who’ve worked for the employer for 30 days and who need to care for a family member or child, employers may generate a credit for qualified paid leave wages paid at 2/3 rate of normal pay, but are capped at $200 per day, for up to an aggregate 10 weeks or $10,000 for all calendar quarters.

Leave credits can’t be used in conjunction with the Paycheck Protection Program loans. Additionally, the same wages can’t be used to calculate the ERTC, the federal Employer Paid Family & Medical Leave credit (IRC 45S) or WOTC.

We’re Here to Help

If you have questions about these credits or would like assistance with claiming them, please contact your Moss Adams professional. We also offer a web-based screening tool, MaxCredits®, which can help you reduce the administrative burden of pursuing credits. Learn more here.

Special thanks to MaryCaitlin Willcuts, Manager, State & Local Tax Services, for her contributions to this article.

Note on COVID-19

During this unparalleled time, we’re closely monitoring the COVID-19 situation as it evolves so we can provide up-to-date guidance and support to help you combat uncertainty. For regulatory updates, strategies to help cope with subsequent risk, and possible steps to bolster your workforce and organization, please see the following resources: