Families First Coronavirus Response Act

The Families First Coronavirus Response Act (Act) was passed this week and signed into law on 3/18/2020. This is the first of what looks to be many rounds of legislation aiming to provide fiscal stimulus and relief for individuals and businesses during the Covid-19-related slowdown of the economy. This particular piece was intended to provide expanded paid leave for sick workers and workers who need to miss work to care for family, if they work for a business with fewer than 500 employees, via emergency expansion of the Family Medical Leave Act (FMLA) and a new federal paid sick leave law. Details are below as released by the IRS. Full text of the law and summaries from Congress can be found on congress.gov (https://www.congress.gov/bill/116th-congress/house-bill/6201). I hesitate to link to an external source for interpretation of the details in here, but Fisher Phillips LLP seems to have a great write-up on this. They are employment attorneys and I have no prior experience with them, no knowledge of their bias or business practices, and am not making a recommendation that anyone should contact them. They just specialize in this area and so their write up seems more valuable than what I could put together with limited expertise. Please consider this un-fact-checked, but believed to be reliable, summary of the Act.

There’s a lot in here and it was passed in a hurry, which will undoubtedly lead to implementation questions and a need for further guidance. I don’t have a lot of answers and these bills are going to be coming fast and furious over the next few weeks so I’ll be doing my best to keep you informed without a ton of my own commentary for now. I’m sure there will be more to come on this…

***Copying directly from the IRS***

WASHINGTON – Today the U.S. Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of Labor (Labor) announced that small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees. This relief to employees and small and midsize businesses is provided under the Families First Coronavirus Response Act (Act), signed by President Trump on March 18, 2020.

The Act will help the United States combat and defeat COVID-19 by giving all American businesses with fewer than 500 employees funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members. The legislation will enable employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.

Key Takeaways

  • Paid Sick Leave for Workers
  • For COVID-19 related reasons, employees receive up to 80 hours of paid sick leave and expanded paid child care leave when employees’ children’s schools are closed or child care providers are unavailable.

Complete Coverage

  • Health insurance costs are also included in the credit.
  • Employers face no payroll tax liability.
  • Self-employed individuals receive an equivalent credit.

Employers receive 100% reimbursement for paid leave pursuant to the Act. Fast Funds

  • An immediate dollar-for-dollar tax offset against payroll taxes will be provided
  • Where a refund is owed, the IRS will send the refund as quickly as possible.
  • Reimbursement will be quick and easy to obtain.

Small Business Protection Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed, or child care is unavailable in cases where the viability of the business is threatened.

  • Easing Compliance
  • Requirements subject to 30-day non-enforcement period for good faith compliance efforts.

To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.

Background

The Act provided paid sick leave and expanded family and medical leave for COVID-19 related reasons and created the refundable paid sick leave credit and the paid child care leave credit for eligible employers. Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act. Eligible employers will be able to claim these credits based on qualifying leave they provide between the effective date and Dec. 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances.

Paid Leave

The Act provides that employees of eligible employers can receive two weeks (up to 80 hours) of paid sick leave at 100% of the employee’s pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis. An employee who 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 can receive two weeks (up to 80 hours) of paid sick leave at 2/3 the employee’s pay. An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional 10 weeks of expanded paid family and medical leave at 2/3 the employee’s pay.

Paid Sick Leave Credit

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 refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.

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

Child Care Leave Credit

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 pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Prompt Payment for the Cost of Providing Leave

When employers pay their employees, they are required to withhold from their employees’ paychecks federal income taxes and the employees’ share of Social Security and Medicare taxes. The employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns (Form 941 series) with the IRS.

Under guidance that will be released next week, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.

The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.

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 for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced next week.

Examples

If an eligible employer paid $5,000 in sick 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 it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.

If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.

Equivalent child care leave and sick leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.

Small Business Exemption

Small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or child care unavailability where the requirements would jeopardize the ability of the business to continue. The exemption will be available on the basis of simple and clear criteria that make it available in circumstances involving jeopardy to the viability of an employer’s business as a going concern. Labor will provide emergency guidance and rulemaking to clearly articulate this standard.

Non-Enforcement Period

Labor will be issuing a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the Act. Under this policy, Labor will not bring an enforcement action against any employer for violations of the Act so long as the employer has acted reasonably and in good faith to comply with the Act. Labor will instead focus on compliance assistance during the 30-day period.

For More Information

For more information about these credits and other relief, visit Coronavirus Tax Relief on IRS.gov. Information regarding the process to receive an advance payment of the credit will be posted next week.

***End of copy from IRS***

Charitable Contributions – Deductions and Recordkeeping

I receive lots of questions around tax time about what charitable contributions are deductible and what records need to be kept to validate the deductions.  Here’s my brief attempt at the basics of donating cash, donating property, or performing charitable services through which you incur expenses:

Cash

1)      If you make a donation in cash that is under $250, an acknowledgement from the organization is not required as long as you have a bank record of the transaction (account statement, credit card bill).  The record must include the name of the charity and the amount of the contribution.  Alternatively, you can have a receipt from the organization, or a payroll record if you donated through a payroll deduction.

2)      If you make a donation in cash that is $250 or over, you must receive acknowledgement from the organization dated prior to the due date of your tax return, and it must state:

  1. The amount of cash and a description (but not the value) of any property other than cash contributed.
  2. Whether the organization receiving the donation provided any goods or services in consideration, in whole or in part, for any cash or property that was contributed.  This is important.  A simple letter saying you donated $1,000 to the organization will not qualify because it doesn’t say specifically that you didn’t receive anything in return for the donation.  In a recent court case, a couple contributed $25,171 to their church over multiple donations through the year, most of which were over $250.  At the end of the year, they received a letter stating the total (and thanking them for their generosity), but the letter didn’t include a statement that said they received nothing in return.  The IRS challenged the deduction, it went to court, and the Tax Court sided with the IRS since this clearly violated the rules for taking a deduction.
  3. A description and good faith estimate of the value of any goods or services received by the donor or if such goods and services consist solely of intangible religious benefit.

Property

If you donate property to a qualified charitable organization, you generally can deduct the fair market value of the property.  This is not the amount you paid for it.  It is the amount the property is worth at the time of the donation (generally not to exceed the value you paid for it).  The recordkeeping rules differ based mainly on the deductible value of the donation:

1)      If the deductible value is less than $250, you need a receipt from the organization showing the name of the organization, the date and location of the donation, and a reasonably detailed description of the property (“1 large bag of clothes” will not do).  Note, the IRS says that you do not need a receipt for donations < $250 if it is impractical to get one (like an unattended drop box).  You must also keep records of the donation which include:

  1. The name and address of the organization
  2. The date and location of the donation
  3. A reasonably detailed description of the property
  4. The fair market value of the property and how you determined it (i.e. thrift shop value, comparative sales, etc.)
  5. Your cost basis in the property
  6. The amount you claim as the deduction
  7. The terms of any conditions attached to the donation.

2)      If the deductible value is between $250 and $500 (inclusive), you need:

  1. the information from #1 above, AND,
  2. a written acknowledgement from the organization detailing the property donated, whether you received anything in return or not, and a description and good faith estimate of anything you did receive in return.  This must be received before the due date of your tax return.

3)      If the deductible value is over $500 but not over $5,000, you need:

  1. the information from #2 above, AND,
  2. your own records showing how you obtained the property, the approximate date you obtained the property, and your cost basis in the property.

4)      If the deductible value is over $5,000, you need:

  1. the information from #3 above, AND,
  2. a qualified appraisal

Special rules exist for cars, boats, and airplanes which include receiving a 1098-C from the charitable organization and your deduction being limited to the amount for which your donated item was sold by the organization (e.g. if you donate your car with a blue book value of $2k to your church and they sell it for $750, your deduction is limited to $750).

Expenses

You can deduct expenses you incur in connection with performing charitable work as long as the expenses are:

1)      not reimbursed,

2)      directly connected with the services you provided,

3)      expenses you only incurred because of the services you provided, AND

4)      not personal, living, or family expenses.

The cost of travel to perform charitable services is deductible including the cost of driving your own car at the annual charitable mileage deduction amount as posted by the IRS (14 cents per mile for 2012 and 2013).  Meals are generally only deductible if you’re required to be away from home overnight.

Note: you cannot deduct the value of your time in performing or traveling to/from charitable services.

See IRS Publication 526 for more information.

Where’s My Refund Tool

The IRS is not providing estimates for direct deposit this year as part of your Form 9325 (E-File Confirmation). If you expect a refund from the IRS, you can check the “Where’s My Refund” tool available at irs.gov. See the information below from the IRS with more detail on the tool:

After the IRS starts processing returns, it expects to process refunds within the usual timeframes. Last year, the IRS issued more than nine out of 10 refunds to taxpayers in less than 21 days, and it expects the same results in 2013. Even though the IRS issues most refunds in less than 21 days, some tax returns will require additional review and take longer. To help protect against refund fraud, the IRS has put in place stronger security filters this filing season.

After taxpayers file a return, they can track the status of the refund with the “Where’s My Refund?” tool available on the IRS.gov website. New this year, instead of an estimated date, Where’s My Refund? will give people an actual personalized refund date after the IRS processes the tax return and approves the refund.

“Where’s My Refund?” will be available for use after the IRS starts processing tax returns on Jan. 30. Here are some tips for using “Where’s My Refund?” after it’s available on Jan. 30:

  • Initial information will generally be available within 24 hours after the IRS receives the taxpayer’s e-filed return or four weeks after mailing a paper return.
  • The system updates every 24 hours, usually overnight. There’s no need to check more than once a day.
  • “Where’s My Refund?” provides the most accurate and complete information that the IRS has about the refund, so there is no need to call the IRS unless the web tool says to do so.
  • To use the “Where’s My Refund?” tool, taxpayers need to have a copy of their tax return for reference. Taxpayers will need their social security number, filing status and the exact dollar amount of the refund they are expecting.

For the latest information about the Jan. 30 tax season opening, tax law changes and tax refunds, visit IRS.gov.

Additional IRS Resources:

IRS YouTube Video:

  • When Will I Get My Refund? –