Employers may have Opportunity under CARES Act for Refundable Tax Credit
While enduring economic hardships, your business may qualify for the refundable tax credit under the recently passed CARES Act. We provide details here.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act supports certain employers that operate a business during 2020 and retain employees, despite experiencing economic hardship related to the COVID-19 crisis, with an employee retention credit.
The refundable tax credit is equal to 50% of qualified wages paid to employees after March 12, 2020, and before January 1, 2021. If you paid any qualified wages between March 13, 2020, and March 31, 2020, inclusive, you will include 50% of those wages together with 50% of any qualified wages paid during the second quarter of 2020 on your second quarter Form 941, 941-SS, or 941-PR to claim the employee retention credit. Do not include the credit on your first quarter Form 941, 941-SS, or 941-PR.
- Private businesses with fewer than 500 employees and all public employers must provide paid sick leave under the Law. The U.S. Department of Labor has the power to issue regulations exempting “small businesses with fewer than 50 employees from the requirements of [providing paid sick leave] when the imposition of such requirements would jeopardize the viability of the business as a going concern.” To date, the U.S. Department of Labor has not issued any such regulations; however, we are monitoring this area and will try to provide updated guidance when appropriate.
- Emergency paid sick leave under the Law must be provided regardless of the length of employment.
- The conditions requiring paid sick leave has been slightly pared back under the Law. Except for employers of emergency responders and health care providers that chose to exclude employees, paid sick leave must be provided for any of the following:
- The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID–19.
- The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID–19.
- The employee is experiencing symptoms of COVID–19 and seeking a medical diagnosis.
- The employee is caring for an individual who is subject to an order as described in subparagraph (1) or has been advised as described in paragraph (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 childcare 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.
- The amount of paid sick leave remains the same and depends on the employee’s classification. Full-time employees get 80 hours of paid sick leave. Part-time employees get paid sick leave in the amount of hours equal to “the number of hours that such employee works, on average, over a 2-week period.” In the case of a varying schedule where an employer cannot determine the number of hours with certainty, the amount of paid sick leave is equal to a 6-month average (“…the average number of hours that the employee was scheduled per day over the 6-month period ending on the date on which the employee takes the paid sick time, including hours for which the employee took leave of any type.”).
- The rate and amounts of benefits have changed under the Law:
- If paid leave is being taken for the employee’s own condition (1-3 above), the employee must be paid their regular rate of pay subject to a cap of $511 per day and $5,110 in total.
- If paid leave is being taken to act as a caregiver (4-6 above) the employee must be paid 2/3 of their regular rate of pay (or minimum wage, whichever is greater) subject to a cap of $200 per day and $2,000 in total.
- The paid sick leave provided by the Law is in addition to any employer-provided PTO.
- Employers cannot require employees to use their work-provided PTO before taking leave under the Law. However, employers can now change their paid leave policies.
- Employers must post notices “in conspicuous places on the premises … where notices to employees are customarily posted” regarding the Law. These notices have not yet been drafted by the Secretary of Labor; however, they will be within seven days.
- Employers that don’t adhere to the Law can face stiff penalties. The government can determine that the employer has not paid minimum wages or engaged in unlawful act under the Fair Labor Standards Act which can subject the employer to risks of audit, fines, or civil action. Additionally, employers may not “discharge, discipline, or in any other manner discriminate against any employee who (1) takes leave in accordance with this Act; and (2) has filed any complaint or instituted or caused to be instituted any proceeding under or related to this Act (including a proceeding that seeks enforcement of this Act), or has testified or is about to testify in any such proceeding.”
- The Law provides employers with the ability to seek tax credits “each calendar quarter an amount equal to 100 percent of the qualified sick leave wages paid by such employer with respect to such calendar quarter.” These tax credits will be subject to technical limitations and an in-depth discussion is beyond these bullet points.
- The Secretary of Labor can issue regulations excluding “certain health care providers and emergency responders from the definition of employee” and allowing such employers to opt out. These regulations have not yet been drafted.
- Emergency sick leave under the Law must be provided regardless of the length of employment.
Frequently asked questions provide a detailed list of questions for employers.