Employer Tax Credits- GKM
As businesses reel from the impact of COVID 19, both employers and employees face a crunch. The federal government, therefore, has provided some additional employer tax credits to ensure that employers are encouraged to keep employees on payroll via these credits. To this end, two different credits have been announced viz. the employee retention credit and the leave credits (paid sick leave and paid family leave).
Employee Retention Credit
- The employee retention credit is a refundable credit designed to encourage employers to keep employees on the payroll.
- The credit applies to wages paid from 03/13/2020 to 12/31/2020
- The credit is 50% of up to $10,000 in wages paid to an employee by an eligible employer experiencing economic hardship caused by/related to COVID 19.
- The credit is available to all employers irrespective of size including tax-exempt organizations.
- However, there are two exceptions in the eligible employer clause – federal state and local government and their agencies are not eligible. Also, businesses that receive a business interruption loan as part of the Paycheck Protection program are also not eligible.
- Eligibility of employers is determined by one of two conditions: Employer’s business is fully or partially suspended by government order due to COVID 19 or Employer sees as a significant decline in gross receipts – when the gross receipts are less than 50% for the same quarter in 2019, starting with the first quarter of 2020.
- Qualified wages include related qualified health plan expenses. If a business had 100 or fewer full-time employees, the credit is based on wages paid to all employees. If a business had more than 100 employees, the credit is allowed only for the time that the employees did not provide service but were paid.
- The employer may not use the same wages to claim retention credit as well as leave credit.
The leave credits are available to eligible employers for paid sick leave as well as paid family leave. Eligible employers are those with less than 500 employees who paid qualified sick leave/family wages between 04/01/2020 through 12/31/2020.
- Paid Sick leave credit is available at the employee’s regular rate of pay up to $511 per day and a maximum of $5,110 in total for up to 80 hours. This is if an employee is unable to work due to COVID 19 symptoms/diagnosis and are subject to isolation/quarantine order or ordered to self-quarantine due to COVID 19.
- Paid Sick Leave credit is also available if an employee is unable to work because they are taking care of someone subject to a COVID 19 isolation/quarantine/self-quarantine order or taking care of a child whose school/daycare is closed due to COVID 19 or whose care provider is unavailable due to COVID 19. The credit is available for two-thirds of the employee’s regular rate of pay up to $200 per day or a maximum of $2000 for up to 80 hours.
- Paid Family Leave credit is available if an employee is unable to work because they are taking care of a child whose school/daycare is closed due to COVID 19 or whose care provider is unavailable due to COVID 19. The credit is available for two-thirds of the employee’s regular rate of pay up to $200 per day or a maximum of $10,000 in total. Up to 10 weeks of qualifying leave and can be counted for this purpose. It can also be combined with sick leave of two weeks for a total of 12 weeks of qualifying leave.