FFCRA tax credits for coronavirus-related employee leave: A valuable benefit expiring Dec. 31
By Benjamin R. Bostic
As you get your business’ fourth-quarter payroll returns ready, there is a valuable tax deduction you do not want to miss: Families First Coronavirus Response Act tax credits, which expire on Dec. 31, 2020.
FFCRA credits are claimed on your quarterly IRS Form 941 if you paid any employees for leave related to COVID-19. Your Fourth Quarter Form 941 is due January 31, 2021 so there is still time to act.
How FFCRA works
FFCRA tax credits apply to people who had to stay home and could not work for COVID-related reasons. Two versions are available:
- Qualified sick leave: This covers 80 hours, or 10 days, of 100 percent of qualified sick leave wages, plus the employer’s share of Medicare tax and qualified health plan expenses paid on those wages. This credit covers employees who were quarantined and/or experienced COVID-19 symptoms and were seeking a medical diagnosis. Employees could also have cared for someone quarantined for coronavirus or for a child whose school or daycare was unavailable due to COVID-19.
Qualified family leave: An additional 10 weeks of tax credits, at two-thirds the employee’s regular pay rate, is available for employees who took paid leave to care for children whose daycare or school became unavailable. Credits are available to maximums of $200 a day and $10,000 a year per employee for the calendar year. Qualified health plan expenses and the employer’s share of Medicare tax on the family leave wages are also eligible for credits.
Note: Qualified sick leave and qualified family leave wages are not subject to the employer’s share of social security taxes.
The criteria cover a broad range of circumstances, so employers in one of these situations can likely find a credit that helps offset the cost of keeping employees on the payroll.
How to claim FFCRA tax credits
Employers can claim their credits in one of three ways:
- Calculate the credit, list it on your quarterly tax return, and remit the reduced tax payment. This is the simplest way to receive the credit and the best for maintaining cash flow. Remember to include those Medicare tax and health insurance costs in the calculation.
- File the full quarterly tax payment and request a refund or apply the credit toward the next quarter.
- Amend previously filed quarterly tax returns to claim the wages and benefits. While this is one way to claim credits owed to you, the wait for the IRS to respond can be a lengthy one.
Note: The federal government, the government of any state or political subdivision thereof (including school districts), and any agencies or instrumentalities of those governments, are not entitled to receive FFCRA tax credits for providing paid leave.
The fine print
Important criteria apply. In general, FFCRA tax credits apply to:
- Businesses employing between 50 and 500 people. Smaller businesses may seek exemptions.
- Employees who cannot work while they’re on leave. Think of the quarantined HVAC technician who can’t enter customers’ homes or the person whose illness or family circumstances preclude performing any business-related work. Employees who do their jobs remotely – even outside regular office hours – don’t qualify their employers for the credit.
For more information, please read my August article on FFCRA tax credits. Additionally, you may want to read my colleague Jeremy Medernach’s FAQ on claiming credits, documentation needed and leveraging FFCRA credits to free more PPP loan funds for payroll expenses.
Any look back at 2020 should include the tax implications of COVID-19. Utilizing FFCRA tax credits to cover paid leave granted for pandemic purposes can significantly lessen the tax burden on your business, but the process has its complexities.
The Boyer & Ritter team has spent the year steeped in FFCRA, PPP, and ERC's intricacies. Our team, including our PPP Loan Forgiveness Support Services, stands ready to help your business find and file for all the tax credits and benefits for which it qualifies. Contact Boyer & Ritter today to wrap up 2020 and approach 2021 with confidence as a year of economic recovery.
Benjamin R. Bostic, CPA, is a director at Boyer & Ritter with experience providing tax and accounting services for closely-held businesses, individuals, not-for-profit organizations. Reach Ben at 717-264-7456 or firstname.lastname@example.org