IRS – Workforce

March 22, 2020June 29, 2023

Treasury, IRS and Labor announce plan to implement Coronavirus-related paid leave for workers and tax credits for businesses

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The Department of Treasury, the Department of Labor, and the IRS announced impending regulations that will help covered businesses navigate the paid family and sick leave provisions of the Families First Coronavirus Response Act, including available tax credits, the small employer exemption, and a 30-day non-enforcement grace period.

Refresher: What Leave Does the Act Provide?

The Act provides that eligible employees of covered employees can receive:

1. Up to 80 hours of paid sick leave at 100 percent of the employee’s regular rate pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis, capped per employee at $511 per day and $5,110 in total;

2. Up to 80 hours of paid sick leave at two-thirds of the employee’s regular rate of pay where the employee is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or child care provider is unavailable for reasons related to COVID-19, and/or the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services, capped per employee at $200 per day and $2,000 in total; and

3. Up to an additional ten weeks of expanded paid family and medical leave at two-thirds of the employee’s regular rate of pay when the employee is unable to work because of a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, capped per employee at $200 per day and $2,000 in total.

Paid Leave Tax Credits

The Act makes available the following tax credits to help employers pay for this paid sick and family leave:

1. For an employee who is unable to work because of Coronavirus quarantine or self-quarantine, or has Coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a tax credit up to $511 per day and $5,110 in the aggregate, for a total of 10 days.

2. For an employee who is caring for someone with Coronavirus, or is caring for a child because the child’s school or child care facility is closed, or the child care provider is unavailable due to the Coronavirus, eligible employers may claim a tax credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days.

3. In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus, eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee’s regular rate of pay, capped at $200 per day or $10,000 in the aggregate, for up to 10 weeks.

4. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for eligible employees during the leave period.

Eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes equal to the amount of qualifying sick and child care leave that they paid, instead of depositing them with the IRS.

If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request with the IRS for an accelerated payment. The IRS expects to process these requests in two weeks or less, with further guidance on this issue coming in the next two weeks.

Examples

1. An eligible employer pays $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including employee withholdings. The employer is entitled to use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required to deposit the remaining $3,000 with the IRS on its next regular deposit date.

2. An eligible employer pays $10,000 in sick leave and is required to deposit $8,000 in payroll taxes. The employer could use the entire $8,000 of taxes to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.

Small Business Exemption

Businesses with less than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or child care unavailability, provided that the employer can show that compliance would jeopardize the ability of the business to continue. The DOL will be providing emergency guidance establishing simple and clear criteria defining the circumstances that will meet the criteria of jeopardy to the viability of an employer’s business as a going concern.

Non-Enforcement Period

The DOL will be issuing a temporary non-enforcement policy. Under the policy, the DOL will not enforce the Act until May 2, 2020 (30 days after its effective date), against employers that have acted reasonably and in good faith to comply.

I continue to monitor these issues in real-time and will be posting updates here as warranted. If you have any questions, feel free to contact me directly.

July 22, 2019July 22, 2019

Student-Loan Matching Hits Snags

Plan sponsors have shown a lot of interest in a recent ruling that allowed one company to make 401(k) matching contributions while employees repay their student loans, but two attorneys following the progress of the idea are doubtful that federal guidance allowing others to implement the idea will be issued any time soon.

In August 2018, the Internal Revenue Service issued a private letter ruling allowing an unnamed company to amend its plan so workers who voluntarily agree to put at least 2 percent of pay toward a student loan would be eligible to receive an employer contribution equal to 5 percent of pay to their 401(k) plan.

That letter addressed the issue facing 44 million graduates today: the $1.5 trillion they carry in student loan debt. Organizations also are seeing a rapid rise in popularity for plans that ease the loan burdens of recent grads.

Since that time, the IRS has met with trade groups to talk about possible federal guidance, said David Levine, a principal at Groom Law Group who was speaking at the Plan Sponsor Council of America’s national conference in April.

“The outcome of the meeting was not as optimistic as one might hope for,” Levine said.

Jeffrey Holdvogt, a partner with law firm McDermott Will & Emery, said that there are other ways to help employees with their student debt, but this private letter ruling was a strategic way to shoehorn the benefit into a tax-friendly vehicle. He suspected that other plan sponsors have been asking for similar private letter rulings, but the IRS has turned them down.

Also read: Indebted to You? Student Loan Benefit Could Be Key Retention Tool

He and Levine agreed that there may be unintended consequences in broadening the scope of the initial private letter ruling or offering separate rulings to other plans sponsors.

First, the two agreed that the idea may get trumped by pending legislation. The Retirement Security & Savings Act, sponsored by Sens. Rob Portman, R-Ohio, and Ben Cardin, D-Maryland, would allow employers to make matching contributions with respect to student loan repayments. In addition, the Retirement Parity for Student Loans Act, sponsored by Sen. Ron Wyden, D-Oregon, would allow 401(k) and 403(b) plan sponsors to make matching contributions on qualified student loan repayments. Employees must submit to the employer proof of the student loan and the loan repayment.

Next, Levine posed several questions about how this ruling, if expanded, could set a precedent for other repayment programs. It could get as crazy as someone buying a yacht and asking for compensation. The general issue of needing to pay off a large liability while saving for retirement fits the same scenario as the student debt question.

“Where do you draw the line?” Levine asked.

Levine cautioned that plan sponsors interested in adopting similar strategies in their 401(k) plans need to rely on the guidance exactly as it was outlined in the original private letter. Companies that simply follow the “spirit” of the private letter may wind up having issues with the IRS.

October 4, 2018June 29, 2023

Employers: Take Advantage of the IRS’ Paid Leave Tax Credit

When Congress reformed the tax law earlier this year, one key change that might have flown under your radar is an employer tax credit for paid family and medical leave.

The IRS has a helpful Q&A available here.

The quick and dirty is that if:

You have a written policy that provides employees with at least two weeks annually of paid family and medical leave (that is, leave for a reason that would otherwise qualify for unpaid leave under the FMLA, whether or not you are covered by the FMLA or the employee is eligible for FMLA leave); and
The written policy applies to all full-time employees, and, on a prorated basis, to all part-time employees; and
The paid leave is not less than 50 percent of the wages normally paid to the employee; and
The written policy is separate from your vacation, sick leave, or general paid-time-off policy; and
The employee worked for you for more than a year, and earned no more than $72,000 in 2017

Then you are eligible for a general business tax credit equal to a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year.

If you have questions about whether you can take advantage of this tax credit, and if so, how, speak with your employment and tax counsel, as well as your accountant.

Also read: The Price of a Family-friendly Workplace

Also read: Tax Reform Trickle-Down is Drip-Filling Employee 401(k) Plans