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The Coronavirus Agricultural and Forestry Business Fund (CAFB Fund)

New support has been announced for agricultural and forestry businesses. This relief was established by the Tennessee Department of Agriculture in an effort to stabilize the food supply chain and agribusiness economy during the COVID-19 pandemic. Some of the eligible industries include: community food kitchens, craft breweries, farmers markets, food distributors, sawmills, and many more. Visit Tennessee Cares Act Management System for a full encompassing list. 

 

Applicants must be an agricultural, food, or forestry business, or nonprofit agricultural entity in Tennessee or have a project located in Tennessee. They must demonstrate business disruption impact from March 1, 2020 to December 30, 2020 under one of the four relief categories: 

  • Business Disruption
  • Pandemic Response
  • Supply Chain Enhancement
  • Increased Meat Processing Capacity
 

CAFB Funding is not a loan and does not need to be repaid. Funding is distributed on a reimbursement basis, which provides support from March 2020 until December 2020. Applications close Monday, August 31st; to apply visit, Tennessee Department of Agriculture website.  ATA can give guidance to applicants and help with any further questions. Contact your CPA at https://www.ata.net/ata-offices/.

 

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Fortify your assets against creditors with a trust

You may think of trusts as estate planning tools — vehicles for reducing taxes after your death. While trusts can certainly fill that role, they’re also useful for protecting assets, both now and later. After all, the better protected your assets are, the more you’ll have to pass on to loved ones. Creditors, former business partners, ex-spouses, “spendthrift” children and tax agencies can all pose risks. Here’s how trusts defend against asset protection challenges.

Tell creditors “hands off”

To protect assets, your trust must own them and be irrevocable. This means that you, as the grantor, generally can’t modify or terminate the trust after it has been established. (A “revocable trust,” on the other hand, allows the grantor to make modifications.) Once you transfer assets into an irrevocable trust, you’ve effectively removed your rights of ownership to the assets. Because the property is no longer yours, it’s unavailable to satisfy claims against you. It’s important to note that placing assets in a trust won’t allow you to sidestep responsibility for debts or claims that are outstanding at the time you fund the trust. There may also be a substantial “look-back” period that could eliminate the protection your trust would otherwise provide, as well as other restrictions.

Build a fence

If you’re concerned about what will happen to your assets after they pass to the next generation, you may want to consider the defensive features of a “spendthrift” trust. Despite the name, a spendthrift trust does more than protect your heirs from themselves. It can protect your family’s assets against dishonest business partners and unscrupulous creditors. It also can protect loved ones in the event of relationship changes. For example, if your son divorces, his spouse generally won’t be able to claim a share of the trust property in the divorce settlement. Several trust types can be designated a spendthrift trust — you just need to add a spendthrift clause to the trust document. Such a clause restricts a beneficiary’s ability to assign or transfer his or her interests in the trust, and it restricts the rights of creditors to reach the trust assets, as allowed by law.

Trustees play a role in keeping your trust safe

If a trustee is required to make distributions for a beneficiary’s support, a court may rule that a creditor can reach trust assets to satisfy support-related debts. So, for increased protection, consider giving your trustee full discretion over whether and when to make distributions. You’ll need to balance the potentially competing objectives of having the access you want and preventing creditors and others from having access.

Make asset protection a priority

If securing your assets is a priority — and it should be — talk to us about whether a trust can provide the protection you need. There may also be other ways to help shelter wealth — for example, maximizing your use of qualified retirement plans. For more information contact info@atacpa.net. © 2020

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6 Key IT Questions to Ask in the New Normal

The sudden shutdown of the economy in March because of the COVID-19 pandemic forced many businesses to rely more heavily on technology. Some companies fared better than others. Many businesses that had been taking an informal approach to IT strategy discovered their systems weren’t as robust and scalable as they’d hoped. Some may have lost ground competitively as fires were put out and employees got back up to speed in an altered working environment.

To keep your approach to technology relevant, you’ve got to regularly reassess processes and assets. Doing so is even more important in the new normal. Here are six key questions to ask: 

  1. What are our users saying? Every successful IT strategy is built on a foundation of plentiful user feedback. Talk with (or survey) your employees about what’s happened over the last few months from a technology perspective. Find out what’s working, what isn’t and why. 
  2. Do we have information silos? Most companies today use multiple applications. If these solutions can’t “talk” to each other, you may suffer from information silos — when different people and teams keep data to themselves. Shifting to a more remote workforce may have worsened this problem or made it more obvious. If it’s happening, determine how to integrate critical systems. 
  3. Do we have a digital file-sharing policy? Businesses used to generate tremendous amounts of paperwork. Sharing documents electronically is much more common now but, without a formal approach to file sharing, things can still get lost or various versions of files can cause confusion. Implement (or improve) a digital file-sharing policy to better manage system access, network procedures and version control. 
  4. Has our technology become outdated? Along with being an incredible tragedy and ongoing problem, the pandemic is accelerating change. Technology that may have been at least passable before the crisis may now be falling far short of optimal functionality. Look closely at whether your business may need to upgrade hardware, software or platforms sooner than you previously anticipated. 
  5. Do employees need more training? You may have implemented IT changes over the past few months that employees haven’t fully understood or have adjusted to in problematic ways. Consider mandatory training and ongoing refresher sessions to ensure users are taking full advantage of available technology and following proper procedures. 
  6. Are your security protocols being followed? Changes made to facilitate working during the pandemic may have exposed your systems and data to threats from disgruntled employees, outside hackers and ever-present viruses. Make sure you have a closely followed policy for critical actions such as regularly changing passwords, removing inactive users and installing security updates. ATA Secure can help answer any data security question. They have the ability to secure networks from the inside and outside.  Learn more about our data security partners here.

Technology has played a critical role in enabling businesses to stay connected internally, communicate with customers and remain operational during the COVID-19 crisis. Our firm can help you assess your IT strategy in today’s economy and identify cost-effective process changes and budget-conscious asset upgrades. For more information, visit ATA Tech.  © 2020

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Conduct a “paycheck checkup” to make sure your withholding is adequate

Did you recently file your federal tax return and were surprised to find you owed money? You might want to change your withholding so that this doesn’t happen next year. You might even want to do that if you got a big refund. Receiving a tax refund essentially means you’re giving the government an interest-free loan.

Withholding changes

In 2018, the IRS updated the withholding tables that indicate how much employers should hold back from their employees’ paychecks. In general, the amount withheld was reduced. This was done to reflect changes under the Tax Cuts and Jobs Act — including an increase in the standard deduction, suspension of personal exemptions and changes in tax rates. The tables may have provided the correct amount of tax withholding for some individuals, but they might have caused other taxpayers to not have enough money withheld to pay their ultimate tax liabilities.

 

Review and possibly adjust

The IRS is advising taxpayers to review their tax situations for this year and adjust withholding, if appropriate. The tax agency has a withholding calculator to assist you in conducting a paycheck checkup. The calculator reflects tax law changes in areas such as available itemized deductions, the increased child credit, the new dependent credit and the repeal of dependent exemptions. You can access the IRS calculator here: https://bit.ly/2OqnUod.

 

Changes may be needed if… There are some situations when you should check your withholding. In addition to tax law changes, the IRS recommends that you perform a checkup if you:

Adjusted your withholding in 2019, especially in the middle or later part of the year
Owed additional tax when you filed your 2019 return
Received a refund that was smaller or larger than expected
Got married or divorced, had a child or adopted one
Purchased a home
Had changes in income

 

You can modify your withholding at any time during the year, or even multiple times within a year. To do so, you simply submit a new Form W-4 to your employer. Changes typically go into effect several weeks after a new Form W-4 is submitted. (For estimated tax payments, you can make adjustments each time quarterly estimated payments are due. The next payments are due on July 15 and September 15.)

 

Good time to plan ahead

There’s still time to remedy any shortfalls to minimize taxes due for 2020, as well as any penalties and interest. Contact us if you have any questions or need assistance. We can help you determine if you need to adjust your withholding. © 2020

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What qualifies as a “coronavirus-related distribution” from a retirement plan?

As you may have heard, the Coronavirus Aid, Relief and Economic Security (CARES) Act allows “qualified” people to take certain “coronavirus-related distributions” from their retirement plans without paying tax. So how do you qualify? In other words, what’s a coronavirus-related distribution?

Early distribution basics

In general, if you withdraw money from an IRA or eligible retirement plan before you reach age 59½, you must pay a 10% early withdrawal tax. This is in addition to any tax you may owe on the income from the withdrawal. There are several exceptions to the general rule. For example, you don’t owe the additional 10% tax if you become totally and permanently disabled or if you use the money to pay qualified higher education costs or medical expenses.

New exception

Under the CARES Act, you can take up to $100,000 in coronavirus-related distributions made from an eligible retirement plan between January 1 and December 30, 2020. These coronavirus-related distributions aren’t subject to the 10% additional tax that otherwise generally applies to distributions made before you reach age 59½. What’s more, a coronavirus-related distribution can be included in income in installments over a three-year period, and you have three years to repay it to an IRA or plan. If you recontribute the distribution back into your IRA or plan within three years of the withdrawal date, you can treat the withdrawal and later recontribution as a totally tax-free rollover. In new guidance (Notice 2020-50) the IRS explains who qualifies to take a coronavirus-related distribution. A qualified individual is someone who: Is diagnosed (or whose spouse or dependent is diagnosed) with COVID-19 after taking a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or Experiences adverse financial consequences as a result of certain events.

To qualify under this test, the individual (or his or her spouse or member of his or her household sharing his or her principal residence) must: Be quarantined, be furloughed or laid off, or have work hours reduced due to COVID-19; Be unable to work due to a lack of childcare because of COVID-19; Experience a business that he or she owns or operates due to COVID-19 close or have reduced hours; Have pay or self-employment income reduced because of COVID-19; or Have a job offer rescinded or start date for a job delayed due to COVID-19.

Favorable rules

As you can see, the rules allow many people — but not everyone — to take retirement plan distributions under the new exception. If you decide to take advantage of it, be sure to keep good records to show that you qualify. Be careful: You’ll be taxed on the coronavirus-related distribution amount that you don’t recontribute within the three-year window. But you won’t have to worry about owing the 10% early withdrawal penalty if you’re under 59½. Other rules and restrictions apply. Contact us if you have questions or need assistance. © 2020

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The CARES Act liberalizes net operating losses

The Coronavirus Aid, Relief, and Economic Security (CARES) Act eliminates some of the tax-revenue-generating provisions included in a previous tax law. Here’s a look at how the rules for claiming certain tax losses have been modified to provide businesses with relief from the novel coronavirus (COVID-19) crisis.

NOL deductions

Basically, you may be able to benefit by carrying a net operating loss (NOL) into a different year — a year in which you have taxable income — and taking a deduction for it against that year’s income. The CARES Act includes favorable changes to the rules for deducting NOLs. First, it permanently eases the taxable income limitation on deductions. Under an unfavorable provision included in the Tax Cuts and Jobs Act (TCJA), an NOL arising in a tax year beginning in 2018 and later and carried over to a later tax year couldn’t offset more than 80% of the taxable income for the carryover year (the later tax year), calculated before the NOL deduction.

As explained below, under the TCJA, most NOLs arising in tax years ending after 2017 also couldn’t be carried back to earlier years and used to offset taxable income in those earlier years. These unfavorable changes to the NOL deduction rules were permanent — until now. For tax years beginning before 2021, the CARES Act removes the TCJA taxable income limitation on deductions for prior-year NOLs carried over into those years. So NOL carryovers into tax years beginning before 2021 can be used to fully offset taxable income for those years.

For tax years beginning after 2020, the CARES Act allows NOL deductions equal to the sum of: 100% of NOL carryovers from pre-2018 tax years, plus the lesser of 100% of NOL carryovers from post-2017 tax years, or 80% of remaining taxable income (if any) after deducting NOL carryovers from pre-2018 tax years. As you can see, this is a complex rule. But it’s more favorable than what the TCJA allowed and the change is permanent.

Carrybacks allowed for certain losses

Under another unfavorable TCJA provision, NOLs arising in tax years ending after 2017 generally couldn’t be carried back to earlier years and used to offset taxable income in those years. Instead, NOLs arising in tax years ending after 2017 could only be carried forward to later years. But they could be carried forward for an unlimited number of years. (There were exceptions to the general no-carryback rule for losses by farmers and property/casualty insurance companies). Under the CARES Act, NOLs that arise in tax years beginning in 2018 through 2020 can be carried back for five years. Important: If it’s beneficial, you can elect to waive the carryback privilege for an NOL and, instead, carry the NOL forward to future tax years.In addition, barring a further tax-law change, the no-carryback rule will come back for NOLs that arise in tax years beginning after 2020.

Past year opportunities

These favorable CARES Act changes may affect prior tax years for which you’ve already filed tax returns. To benefit from the changes, you may need to file an amended tax return. Have questions? Contact us on our leadership page.  © 2020

 

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PPP Data Collection Spreadsheet

*As of 4-28-20

View this updated PPP loan forgiveness workbook that can benefit your business. Consider gathering as much information as possible now by using the PPP loan forgiveness data collection form. Click here to download the spreadsheet.

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What are the key distinctions between layoffs and furloughs?

As businesses across the country grapple with the economic fallout from the novel coronavirus (COVID-19) pandemic, many must decide whether to downsize their workforces to lower payroll costs and stabilize cash flow. If your company is contemplating such a move, you’ll likely want to consider the choice within the choice: that is, should you lay off workers or furlough them?

Basic difference

The basic difference between the two is simple. Layoffs are the ostensibly permanent termination of employees from their positions, though you can rehire some of these individuals when business improves. Meanwhile, a furlough is a mandatory or voluntary suspension from work without pay for a specified period. In most states, furloughed workers are still considered employees and, therefore, don’t receive a “final” paycheck. Check with an employment or labor attorney, however, to make sure your state’s furlough laws don’t trigger final pay requirements.

Employee benefits are another issue to explore. Reach out to your health insurance provider to see whether a furlough is a triggering event for COBRA health care coverage purposes. In addition, employees can sometimes be dropped from a group health plan if they don’t work enough hours. Ask about potential problems this might cause under the Affordable Care Act.

Applicable laws

If you’re a midsize business, and layoffs or furloughs begin to look unavoidable, it’s particularly important to coordinate the move with legal counsel. Under the Worker Adjustment and Retraining Notification (WARN) Act, employers with 100 or more employees must provide written notice at least 60 days before a plant closing or mass layoff. To have a mass layoff, at least 50 workers at a single site must be laid off for more than six months (or have their hours reduced by at least 50% in any six-month period). Because furloughs generally last for less than six months, a WARN notice wouldn’t likely be required. But you should still check with your employment attorney regarding applicable state laws and any other potential legal ramifications.

Unemployment benefits

To soften the blow, you can inform furloughed employees that they’re generally eligible for unemployment benefits — assuming their previous year’s wages are enough to qualify. Although a waiting period often applies before an employee can start receiving unemployment benefits, many states have waived these waiting periods because of the COVID-19 outbreak. Again, double-check with your attorney to fully understand the unemployment insurance rules before communicating with employees.

Formulate a strategy

Unprecedented unemployment numbers show that many businesses have had to downsize. It’s worth noting that, if you can hang on to your employees, recently passed tax relief created a refundable credit against payroll tax. (Rules and limits apply.) Our firm can help you assess your employment costs and formulate a strategy for optimally sizing your workforce.  Contact us at info@atacpa.net to schedule a call. © 2020

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IRS Outlines Procedures for Payroll Tax Credits & Rapid Refunds for Employers

FOR IMMEDIATE RELEASE
Mark Puckett, CPA
info@atacpa.net

 

IRS OUTLINES PROCEDURES FOR PAYROLL TAX CREDITS AND RAPID REFUNDS FOR EMPLOYERS MAKING FEDERALLY-MANDATED COVID-19 LEAVE PAYMENTS

 

The federal government is trying to get much-needed cash into the hands of employers and employees affected by COVID-19 as quickly as possible. To do so, it is utilizing employers’ existing payroll systems to minimize the employers’ cash flow hardship that might otherwise have occurred from having to pay new, mandatory federal paid sick and child care leave to certain employees. Specifically, the IRS has just clarified that employers can subtract the cost of the new mandated paid leave (plus the cost of keeping affected employees’ health care coverage in place during that leave) from any payroll taxes that are otherwise due to the IRS.

IRS Information Release (IR) 2020-57 (March 20, 2020) outlines the system that will promptly reimburse employers for the benefits required under the Act. IR 2020-57 also states that eligible employers are entitled to an additional tax credit based on costs to maintain health insurance coverage for the eligible employee during the mandated federal paid sick and child care leave period.

Background

Businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick and child care leave through December 31, 2020, under the Families First Coronavirus Response Act (Act) (H.R. 6201), can claim a refundable federal tax credit to recover 100% of those payments. Equivalent credits are available to self-employed individuals based on similar circumstances.

Mechanics of Tax Credit Refunds

Generally, employers are required to withhold federal income, Social Security and Medicare taxes from their employees’ paychecks. Normally, employers must timely remit to the IRS the withheld taxes, along with the employer’s share of Social Security and Medicare taxes. But the IRS will release guidance the week of March 23 allowing employers who pay mandated federal paid sick or child care leave to decrease their federal payroll tax deposit by the cost incurred. The IRS also said that the cost of providing such leave can include the cost of continuing health care coverage during the federally mandated sick and child care leave period.

Source of Tax Credit Refunds

Employers can deduct the cost of providing such leave from their total federal tax deposit amount from all employees (not just from those who take the federally mandated leave). Specifically, employers can deduct the cost of providing such leave from: (1) federal income taxes withheld from all employees’ pay; (2) the employees’ share of Social Security and Medicare taxes; and (3) the employer’s share of Social Security and Medicare taxes.

 

Self-Employed

Equivalent tax credits are available to self-employed individuals for federally mandated paid sick and child care leave. But self-employed individuals will deduct their tax credits from their estimated tax payments or can claim a refund on their federal income tax return (i.e., their 2020 Form 1040).

As a result, employers (including self-employed individuals) will have more cash in-hand (by not remitting taxes that are otherwise due) to cover the cost of providing the federal paid sick and child care leave.

Rapid Refunds

IR 2020-57 also said that if the payroll tax off-set is not sufficient to cover 100% of those costs, employers can request a refund of their tax credit for any remaining amount. The IRS expects to process such refunds within two weeks.

Examples. Here are two examples from IR 2020-57:

Example 1: If an eligible employer paid $5,000 in federally mandated paid sick or child care leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes that it was otherwise going to deposit to make the qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.

Example 2: If an eligible employer paid $10,000 in federally mandated paid sick or child care leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes that it was otherwise going to deposit to make qualified leave payments and could file a request for an accelerated refund for the remaining $2,000.

New Small Business Exemption

According to IR 2020-57, small businesses with fewer than 50 employees will be eligible for an exemption from the federally mandated child care leave if complying with those requirements would jeopardize the ability of the business to continue as a going concern. The exemption will be available on the basis of simple and clear criteria, which the U.S. Department of Labor will provide in emergency guidance.

Non-Enforcement Period

IR 2020-57 says that the U.S. Department of Labor will issue a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the Act. For at least the initial 30 days (i.e., through April 20), the Labor Department will not bring any enforcement action against any employer for violating the Act, so long as the employer acted reasonably and in good faith to comply with the Act.

 

Continue to monitor ATA’s Covid-19 resource page for more information.
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FEDERAL AID PACKAGE HELPS INDIVIDUALS AFFECTED BY COVID-19

FOR IMMEDIATE RELEASE
Mark Puckett, CPA
info@atacpa.net

 

FEDERAL AID PACKAGE HELPS INDIVIDUALS AFFECTED BY COVID-19

The Families First Coronavirus Response Act (H.R. 6201),  became law on March 18, 2020. The Act guarantees free testing for the novel coronavirus (COVID-19), establishes emergency paid sick leave, expands family and medical leave, enhances unemployment insurance, expands food security initiatives, and increases federal Medicaid funding.

The Act includes up to 80 hours of emergency paid sick leave for workers who are unable to work while they are sick or complying with COVID-19 restrictions or caring for school-age children due to the closure of schools or child care facilities, as well as paid family and medical leave that employees will be able to use to care for family members (not for personal illness) for up to 12 weeks. The first 10 days of emergency family and medical leave may be unpaid, unless employees opt to use accrued paid time off for those days.

The mandatory paid leave provisions apply to employers with fewer than 500 employees and government employers, with exceptions for health care workers and first responders. Self-employed individuals would be eligible for the new benefits provided under the Act. It is not clear if individuals who have self-employment income from their partnership or limited liability company would be eligible for the new self-employed benefits, as the Act does not specifically address those situations. Employers with 500 or more employees would not be subject to those rules.  Employers who are required to provide paid time off would need to initially bear the costs of paying their employees, but the federal government would provide payroll tax credits to help cover those costs.

Background. Currently, the federal Family Medical Leave Act of 1993 (FMLA) provides eligible employees up to 12 work weeks of unpaid leave a year and requires group health benefits to be maintained during the leave as if employees continued to work instead of taking leave. Employees are also entitled to return to their same or an equivalent job at the end of their FMLA leave. Special rules apply to military personnel.

To be eligible for FMLA, an employee is required to have been employed by their employer for a year, worked for 1,250 hours, and worked in a location where there are 50 other employees within a 75-mile radius. The FMLA applies to all private-sector employers who employ 50 or more employees for at least 20 workweeks in the current or preceding calendar year (including joint employers and successors of covered employers). Many states have enacted laws that are similar to federal FMLA, which apply to smaller employers who may be exempt from federal FMLA. The FMLA also applies to federal, state and local employers. These current provisions remain available for qualifying employees.


Employer Mandates

Emergency Paid Sick Leave. Through December 31, 2020, the Act requires employers with fewer than 500 employees and government employers to provide all employees (including union employees and regardless of how long the individual worked for the employer, but excluding health care workers and first responders) with 80 hours (e.g, 10 business days) of emergency paid sick leave for full-time workers (pro-rated for part-time employees or employees with varying work schedules) for employees who are unable to work or telework because the employee:

  • Is subject to a federal, state, or local COVID-19 quarantine or isolation order;
  • Has been advised by a health care provider to self-quarantine because of COVID-19;
  • Is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
  • Is caring for an individual subject to or advised to quarantine or isolation;
  • Is caring for a son or daughter whose school or place of care is closed, or child care provider is unavailable, due to COVID-19 precautions; or
  • Is experiencing substantially similar conditions as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.

Generally, employers would pay employees at their regular rate of pay for emergency sick leave, capped at $511 per day ($5,110 in the aggregate) if the leave is taken for an employee’s own illness or quarantine (i.e., for the first three bullets above). Employers would pay employees two-thirds of their regular rate of pay for emergency sick leave, capped at $200 per day ($2,000 in the aggregate) if the leave is taken to care for others or due to school closures (i.e., for the last three bullets above).

An employer cannot require an employee to use other paid leave before using this paid leave. Employers would not be able to require employees to find replacement workers to cover their shifts if employees use emergency paid sick leave. The federal government is supposed to provide a model notice within seven days after enactment, which employers would be required to post at their workplace, informing employees of their right to emergency paid sick leave. The U.S. Department of Labor is directed, within 15 days after enactment, to issue guidelines on how to calculate the amount of emergency paid sick leave. The Department of Labor also has the authority to issue regulations to exempt small businesses with fewer than 50 employees from having to provide emergency paid sick leave to employees who need to care for a son or daughter whose school or place of care is closed, or child care provider is unavailable, due to COVID-19 precautions if the imposition of such requirements would jeopardize the viability of the business as a going concern.

Employers would face penalties for failing to comply with the new emergency paid sick leave rules and are prohibited from discriminating against employees who take emergency paid sick leave. Eligible employees could use emergency paid sick leave before using new, emergency paid family and medical leave created by the Act.

FMLA Amendments. The Act would add provisions to the FMLA to provide employees (including union employees) who have been employed for at least 30 days by employers with fewer than 500 employees or government employers, with the right take up to 12 weeks of job-protected leave through December 31, 2020, if the employee is unable to work or telework due to having to care for a child under age 18 if the child’s school or place of child care has been closed (or the child care provider is unavailable), due to the COVID-19 public health emergency.  Employers may elect to exclude health care workers and first responders from taking this public health emergency FMLA.

The first 10 days of FMLA under these new provisions may be unpaid. Employees can use other paid time off such as vacation, sick days, sabbatical, or emergency paid sick leave to cover that gap, but employers cannot require employees to use their accrued paid time off before using these 12 weeks of extended FMLA leave. Employers would pay employees two-thirds of their regular rate of pay for this emergency FMLA leave, capped at $200 per day ($10,000 in the aggregate per employee). Adjustments would be made to the amount of paid time off for employees with varying schedules.

The Act gives the U.S. Department of Labor authority to issue regulations that would exclude certain health care providers and emergency responders from being able to take emergency family and medical leave. The Department of Labor also has the authority to issue regulations to exempt small businesses with fewer than 50 employees from the emergency family and medical leave requirements if the imposition of such requirements would jeopardize the viability of the business as a going concern. The Act would also exempt employers with fewer than 50 employees in a 75-mile radius from civil damages in an FMLA lawsuit.

Under the Act, covered employers (those with less than 500 employees) are required to hold an employee’s job open for them until the end of the leave period. However, an exception applies to employers with fewer than 25 employees if the employee’s position no longer exists due to economic conditions or other changes in the employer’s operations that affect employment and are caused by the COVID-19 crisis, and the employer made reasonable efforts to restore the employee’s job. And, if those efforts failed, the employer agrees to reinstate the employee if an equivalent position becomes available within a year.

The Act creates new, refundable payroll tax credits for employers to help cover the costs of this new paid sick and family leave.

Payroll Tax Credits

To assist employers who are required to provide emergency paid sick leave or FMLA leave under the programs described above, the Act provides for a refundable tax credit applicable against the employer’s portion of Social Security or Railroad Retirement Tax Act (RRTA) tax for amounts paid under those programs. The credit is equal to 100% of the compensation paid in each calendar quarter to employees who are not working for the reasons enumerated above, subject to the following limitations:

For payments to an employee who needs time off for self-isolation, diagnosis, or care of a COVID-19 diagnosis, or compliance with a health care provider’s recommendation or order, the credit is capped at $511 of eligible wages per employee per day. For payments to an employee who needs time off to care for a family member who has been exposed to or diagnosed with the COVID-19, or a child under age 18 whose school or place of care has been closed, the credit is capped at $200 of eligible wages per employee per day. The credit for emergency paid sick leave wages is only available for a maximum of 10 days per employee over the duration of the program. For expanded FMLA, the credit is capped at $200 of eligible wages per employee per day and $10,000 for all calendar quarters.

Both of the credits are increased by any amounts paid or incurred by the employer to maintain a group health plan, to the extent those expenses are (1) excluded from the employee’s gross income under the tax code and (2) “properly allocable” to the respective qualified sick or FMLA wages required to be paid under the Act. The exact method of allocation will be provided by regulation at a later date, but the Act provides that the allocation will be treated as properly made if done “on the basis of being pro rata among covered employees and pro rata on the basis of periods of coverage.”

If the credit exceeds the employer’s total liability for Social Security or RRTA tax for all employees for any calendar quarter, the excess is refundable to the employer. The employer may choose not to apply the credit. Further, to prevent a double benefit, the employer cannot obtain a deduction for the amount of the credit. In addition, employers may not receive the credit in connection with wages for which a credit is allowed under Section 45S (credit for paid family and medical leave).

Similar rules apply to a self-employed individual that allow a refundable tax credit against the individual’s self-employment tax. The credit is capped at the lesser of the amounts that apply to eligible wages per employee or the individual’s lost self-employment income. The House-passed version of the Act provides guidance on how to determine the individual’s lost income due to the corona virus.

Notably, required payments for emergency paid sick leave or FMLA under the Act will not be considered wages for purposes of calculating the employer’s portion of the Social Security or RRTA tax. In addition, the tax credits available to an employer are increased by the amount of the employer’s liability for Medicare tax on wages paid under the Act, effectively exempting the emergency sick leave and FMLA payments from that tax as well. In this way, the Act provides employers with two tax benefits: (1) refundable credits against the employer’s portion of Social Security or RRTA tax; and (2) an exemption from, or credit against, the employer’s portion of Social Security or RRTA and Medicare taxes on the wages required to be paid under the Act.

However, the law does not exempt these payments from the definition of wages for the purpose of other taxes (including the employee’s portion of Social Security, RRTA and Medicare taxes).

The Act ensures there is no negative impact to the Social Security program caused by the tax credit or the exemption of sick pay and family leave pay from Social Security tax by authorizing a transfer of funds from the General Fund to the Social Security and disability insurance trust funds to replace the lost employer contributions. The tax provisions discussed herein will apply beginning on a date to be determined by the Secretary of the Treasury after the enactment of the Act and ending on December 31, 2020.

Continue to monitor ATA’s Covid-19 resource page for more information.