The Families First Corona Response Act and the CARES Act entitle employers and self-employed individuals to claim payroll tax credits. Sean Bryan’s
column—entitled “Alternate Sources of Government Funds During COVID-19
"—addresses refundable and deferred payroll tax credits.
The Families First Corona Response Act signed on March 18, 2020, entitle employers and self-employed individuals to claim refundable tax credits against payroll taxes for sick leave and family leave payments made beginning April 1 mandated by that legislation. The amount of these credits may be retained by employers rather than making payments to the IRS, and are entitled to be advanced if the costs exceed the applicable payroll taxes.
Additionally, the CARES Act signed on March 27, 2020, entitles small business employers and self-employed individuals whose operations have been suspended as a result of government orders limiting commerce, travel or group meetings or employers who experience a greater than 50% reduction in quarterly receipts may defer 50% of payroll taxes or corresponding self-employment taxes for wages or income beginning March 13. The deferral is until 2021 and 2022.
Some words of caution. First, there are limits on both sets of credits - FFCRA credits are limited to 10 days of wages, where the CARES Act credit is limited to 50% of wages, capped at $5000 per employee, and for employees making more than $100,000 per year. Neither credit may be claimed if employers benefit from pre-existing credits like Work Opportunity Credits, and credits may not be claimed under both the FFCRA and the CARES Act for the same payroll. Nor may credits under the CARES Act be claimed for employers who receive a PPP loan. Finally, there is much fine print regarding what is and is not eligible to be included in the calculation of the credits.
Advances of the credits are to be claimed on IRS Form 7200. On April 24, 2020, the IRS included in Bulletin 2020-17 some common errors to avoid when filing this form, such as missing Employer Identification Numbers, checking multiple boxes or no boxes for a line, using employee numbers rather than dollar amounts, bad math, and failing to sign the form (which will automatically get it rejected). Advances will be funded by checks rather than direct deposit (which may be slowed with the Economic Impact Payment checks being processed).
For further information on the CARES Act, click on the link below.https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses