The House of Representatives passed this proposed legislation for key employment tax provisions on Friday, March, 13, 2020. Below is a brief general summary.
The summary provides information for the employers who will pay sick pay or will pay family medical leave related to the COVID 19 virus. These rules apply to self-employed people as well.
Types of pay affected:
- Self isolation
- To obtain medical diagnosis
- To comply with recommended or required order of the government
- To care for or assist a family member who is dealing with 1 thru 3 above
- To care for a child whose school is closed or a daycare provider is unavailable
The duration of the paid sick time per above is 80 hours for full time employees and pro-rated for part-time workers.
These sick pay wages are in addition to the current sick pay policies and are required to be used before regular sick pay.
Employers are required to post notices regarding above.
The effective date has not been determined as the Senate needs to approve and President needs to sign the bill. Somerset will provide a follow up to this summary as soon as the legislation becomes law.
The legislation sunsets December 31, 2020.
Employers covered are as follows:
- Private company with fewer than 500 employees
- Public agencies that employ 1 or more employees
Note: private companies with over 500 employees and publicly held companies appear to be exempt from this legislation. At this time, it is unclear why the bill was drafted this way. Additional legislation may be forthcoming for employers with more than 500 employees.
Covered employers will receive a tax credit against its payroll tax liability as follows:
- 100% of qualified sick wages paid by an employer each calendar quarter between $200 and $511 per day per employee for up to 10 days in total on or before 12/31/2020. For example $500 per day multiplied by 10 days equals $5,000. We interpret the proposed legislation as follow: The employer would get a $5000 credit against its payroll tax liability when filing its payroll tax returns for the applicable period. The credit is refundable if not enough payroll tax to offset in the particular quarter. Please keep in mind that the bill language has no specifics regarding how the credit will be implemented so please do not take the above interpretation as absolute. When more detail is available we will provide it to you immediately and advise you as to next steps on how to apply the new legislation.
- The credit amount must be added back to gross income of the employer in the quarter in which the credit is taken. So the benefit to the employer is the $5,000 credit in excess of the tax due on the $5,000 of income add-back in our example. Assume a federal and state tax rate of 40%, the tax due would be $2,000 so a Net Tax Credit benefit of $3,000 to the employer.
- The sick pay wages are not subject to federal payroll taxes for employee and employer. This savings to the employee or employer depends upon whether the employee is over the FICA wage base when sick pay occurs.
- Similar rules apply to self-employed individuals in that the self-employment tax will be reduced by the amount of income the self-employed individual is not able to earn during such 10 day period using the same $200 to $511 per day amounts. This credit should reduce estimated payment requirements for self-employed individuals during this time frame. There is no income add-back application. However, the self-employment tax credit benefit is reduced by any credit received as an employee if the affected individual is an employee and self-employed in a separate business at the same time.
There is a similar provision to the sick pay provisions above for required paid family leave at $200 per day per employee not to exceed 50 days up to $10,000 of wages for all calendar quarters thru 12/31/2020. The credit is against the payroll tax similar to above. This credit is also an add-back to gross income. The wages are also not subject to employer and employee payroll taxes similar to above.
There is a provision related to the Family Medical leave portion of the above that could
exempt private companies with under 50 employees of complying with this provision if complying will put the small business out of business. This is going to be difficult to determine and address.
The above legislation summary is likely to apply to most businesses in the United States that have employees or are self-employed.
Please note that as we have reviewed the language in the bill, there are literally more questions than answers. We hope that the final bill language will have more detail but given the short time frame to get this law enacted, we are not hopeful there will be more detailed language in the final bill. We hope the Treasury will come out with regulations as soon as possible so that we may assist you with more specifics of how this legislation will impact your business.
These are unique and stressful times for all of us. Somerset is here to assist you in any way possible. Please reach out to your Somerset contact at 317-472-2200 or to discuss this proposed legislation in more detail.