Several arms of the federal government are taking steps to help the country deal with the spread of the coronavirus (COVID-19) and the implications for individuals and businesses.
Treasury Secretary Steven Mnuchin announced Tuesday, March 17 that individual taxpayers can delay income tax payments on as much as $1 million in taxes owed for up to 90 days (to July 15) and corporate taxpayers can delay up to $10 million for the same time frame. The relief applies to federal returns, not state tax deadlines.
The Trump administration is weighing a fiscal stimulus package of about $1 trillion. These developments have not been finalized and the federal government response to the effects of COVID-19 is an ever-evolving situation.
On March 14, the U.S. House of Representatives passed a bipartisan bill that has received support from President Trump and is being reviewed by the Senate this week. The Families First Coronavirus Response Act includes a wide range of provisions, including some addressing insurance coverage and reimbursement of diagnostic testing costs and others expanding safeguards for economically disadvantaged individuals. It also includes two significant groups of measures that will affect certain employers and workers through December 31, 2020.
Expanded family and medical leave
The act amends the Family and Medical Leave Act (FMLA) for employees who 1) work for employers with fewer than 500 employees, and 2) have been on the job at least 30 days. Under the bill, these employees will have the right to take up to 12 weeks of job-protected leave to:
- Comply with a requirement or recommendation to quarantine due to exposure or symptoms of COVID-19,
- Care for an at-risk family member who’s quarantined due to exposure or symptoms of COVID-19, and
- Care for their children if the children’s school or place of care has been closed, or the childcare provider is unavailable, because of COVID-19.
The bill mandates paid leave after 14 days at two-thirds of the employee’s usual rate. (The first 14 days are covered under the paid sick leave provisions discussed below). However, the bill gives the U.S. Secretary of Labor the power to issue regulations that exempt small businesses with fewer than 50 employees if it jeopardizes the viability of the business. Many American workers won’t be protected by the expansion since it potentially only applies to employers with between 50-500 employees.
The act will help employers subject to the expansion by allowing them to take a tax credit against their share of Social Security taxes for 100% of the qualified family leave wages they pay each quarter. The amount of wages taken into account for each employee is capped at $200 per day and $10,000 for all calendar quarters. Any excess credit over its Social Security tax liability is refundable to the employer.
No deduction is allowed for the amount of the credit, and no credit is allowed for wages that are subject to the existing Section 45S business tax credit for paid family and medical leave. Employers can elect to not have the credit apply.
The 100% refundable family leave credit also is available for certain self-employed individuals, applicable against income taxes. The qualified leave amount is capped at the lesser of $200 per day or the average daily self-employment income for the taxable year per day. These individuals can count only those days they’re unable to work for reasons covered by the expanded FMLA.
Paid sick leave
The act requires employers with fewer than 500 employees to provide two weeks of paid sick leave, at the employee’s regular rate, to quarantine or seek a diagnosis or preventive care for COVID-19. If the employee must take leave to care for a family member for such purposes, or to care for a child whose school has closed or childcare provider isn’t available, these employees must provide leave paid at two-thirds of the employee’s regular rate. Full-time employees are entitled to 80 hours of paid sick leave, and part-time employees are entitled to the typical number of hours that they work in a typical two-week period.
As with expanded family leave, covered employers can claim an elective refundable 100% tax credit for qualified paid sick leave wages, also against Social Security taxes. But the bill makes a distinction between those wages paid for employees who must self-isolate and those paid for to employees caring for a family member or child. For the former, the amount of wages taken into account per employee is capped at $511 per day; for the latter, it is capped at $200 per day. The total number of days taken into account per employee is limited.
Once again, any excess credit over their Social Security tax liability is refundable, no deduction is allowed for the amount of the credit and no credit is allowed for wages that are subject to the Section 45S business tax credit.
Self-employed individuals are similarly eligible for the refundable credit at differing amounts — 100% for personal needs and 67% to care for a family member or child. The amount of wages is capped at $511 per day or the average daily self-employment income for the taxable year per day.
The IRS has published new guidance clarifying that high-deductible health plans (HDHPs) can pay for COVID-19-related testing and treatment without putting their status at risk. Therefore, individuals with HDHPs that provide such coverage can continue to contribute to their health savings accounts (HSAs) and deduct the contributions on their 2020 tax returns (or make pre-tax contributions their employer-sponsored HSAs).
Health insurance plans generally must satisfy several requirements to qualify as an HDHP. For example, providing non preventive health care coverage without a deductible, or with a deductible below the required minimum, would forfeit HDHP status. The IRS is temporarily suspending this rule to avoid administrative delays or other financial disincentives that could impede testing and treating for COVID-19.
More to come
We will continue to provide relevant updates as they become available. To discuss your organization’s specific concerns or learn more, please contact your MarksNelson representative or call (816) 743-7700.