New Law Extends & Expands Employer Relief Provisions
As you likely know by now, in the waning days of December 2020, a new Covid-19 relief bill known as the Consolidated Appropriations Act of 2021, or CAA, became law.
Probably the most discussed aspects of CAA were a new round of PPP forgivable loans, an extension of unemployment benefits and a second wave of Economic Impact Payments to individuals. I covered each of these in some respect in my last column, published December 30.
There were other provisions of the new law that deserve attention as well, some of which provide vital cash flow support to small businesses trying to stay open and keep their people employed. Today we focus on a couple of these critical provisions.
Extension of Paid Sick and Family Leave Credits
A previous relief bill, the Families First Coronavirus Relief Act, or FFCRA, required employers who employ fewer than 500 full-time and part-time employees to provide paid leave to workers who are unable to work or telework due to COVID-19 related circumstances. To help pay for this, the cost of providing the required leave is offset with refundable tax credits applied against employment taxes for the qualified wages taken beginning April 1, 2020 through December 31, 2020.
While the mandate for these small businesses to provide this leave was not extended, the CAA nonetheless extends the refundable tax credits available to employers who do continue to provide paid sick and family leave related to the COVID-19 pandemic to their employees through March 31, 2021.
The law similarly provides a mechanism through which the credits can be claimed by self-employed individuals and allows them to use their reported wages from tax year 2019 instead of tax year 2020 to compute the credit.
Further, the law aligns the definitions of qualified wages for paid sick and family leave with the Internal Revenue Code and excludes leave payments from employer Social Security employment taxes.
Extension of Deferred Payroll Taxes
Back in August, the President signed a Presidential Memorandum directing Treasury to permit the postponement of the withholding, deposit, and payment of the employee's share of Social Security tax (6.2%) on wages and compensation paid from September 1, 2020 through December 31, 2020 for employees whose amount of compensation, payable during any biweekly pay period generally is less than $4,000, or the equivalent amount with respect to other pay periods.
The new law extends the repayment period of the deferred employee taxes through December 31, 2021. It also provides that penalties and interest will not begin to accrue on the deferred amounts until January 1, 2022.
Employee Retention Credit Extension and Expansion
Under the CARES Act passed last year, an employee retention credit (ERC) was instituted that provided a refundable payroll tax credit for 50% of qualified wages of up to $10,000 per employee for a maximum credit of $5,000 per employee.
The CAA extends the ERC from January 1, 2021 through June 30, 2021, and makes multiple taxpayer-friendly changes to the ERC including the following:
- Increases the ERC rate from 50% to 70% of qualified wages;
- Expands the eligibility for the credit by reducing the required year-over-year gross receipts decline from 50% to 20% and provides a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility;
- Increases the limit on per-employee creditable wages from $10,000 for the year to $10,000 for each quarter;
- Increases the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees;
- Removes the 30-day wage limitation, allowing employers to, for example, claim the credit for bonus pay to essential workers;
- Allows businesses with 500 or fewer employees to advance the credit at any point during the quarter based on wages paid in the same quarter in a previous year; and
- Provides rules to allow new employers who were not in existence for all or part of 2019 to be able to claim the credit.
As with many other of the provisions of the CAA that provide relief to individuals and businesses, these extended and expanded employment-related provisions can give much needed short-term cash flow aid to small businesses striving to survive the pandemic.