Congress and state legislatures and administrative agencies are working hard to provide necessary tax relief for those affected by the coronavirus disease (COVID-19) pandemic. This Alert discusses the tax provisions in the Families First Coronavirus Response Act (Act) passed by the US House of Representatives on March 14, 2020. The Senate is expected to consider this legislation this week and changes are possible before it goes to the President for his consideration. The following is based on the bill that passed the House.
I. Federal tax relief
The Act mandates temporary emergency paid leave for employees to care for themselves and family members affected by the current health emergency, as well as new temporary federal tax credits to help subsidize the cost to employers and self-employed individuals. The tax benefits also apply to self-employed individuals.
The mandates and tax credits are limited by company size. To determine if your company is covered please refer to our alert of today, Coronavirus: Congress expected to pass expanded paid leave.
The leave benefits apply to individuals who are unable to work because of a current diagnosis of COVID-19, who are quarantined by a healthcare worker or government agency to prevent the spread of COVID-19, who are caring for another person who is diagnosed or quarantined, or who are caring for a child whose school or day care facility has been closed as a result of COVID-19.
After the Act is enacted, the following tax credits will become available through the end of 2020:
- Payroll credit for required paid sick leave. Employers are allowed a credit against the employer portion of social security taxes for 100 percent of qualified sick leave wages not to exceed $200 per day ($511 per day in the case of (1) an individual who is self-isolating because of a COVID-19 diagnosis; (2) an individual with COVID-19 symptoms out of work to obtain a diagnosis; and (3) an individual out of work as a result of order from a health official). The number of sick days eligible for the credit is ten days, which can be taken in the first quarter, and any unused days in that quarter can be taken as a credit in a succeeding quarter in 2020. Excess credits are refundable, and an employer who receives any payroll credits must include the amount of such credits in its gross income for the year. Employers may not claim both this payroll credit and the existing credit for Family and Medical Leave (FML) on the same wages paid to an employee. An employer may elect not to receive these payroll credits for all of its employees during any quarter in 2020.
- Credit for sick leave for self-employed individuals. Using similar criteria as the payroll credit for employers relating to required paid sick leave, the sick leave credit is extended as an income tax credit for self-employed individuals. The Treasury Department is expected to issue regulations regarding the documentation required to prove that an individual claiming the credit is an eligible self-employed individual.
- Payroll credit for required family leave. Employers are allowed a credit against the employer portion of the social security taxes for each calendar quarter up to 100 percent of qualified family leave wages paid during days of family leave mandated by the law not to exceed $200 per individual per day but not to exceed $10,000 for all calendar quarters. Excess credits are refundable, and the credit may not be taken on wages for which the employer also takes the existing credit for FML. An employer may elect not to receive these payroll credits for all of its employees during any quarter in 2020.
- Credit for family leave for self-employed individuals. Using similar criteria as the payroll credit for employers relating to required family leave, a credit against income taxes is extended to self-employed individuals in an amount equal to the number of days (up to 50) during the year during which the individual is unable to work multiplied by the lesser of (i) the average daily self-employment income of the individual or (ii) $200.
All of these new credits are extended to employers in the US possessions. In the case of the US Virgin Islands the provisions automatically become a part of the local tax law, while in Puerto Rico, the provisions will not become effective until Puerto Rico adopts a plan, with the approval of the US Treasury, of how to implement the distribution of the new credits to its residents.
Given the number of computational and implementation elements of these new credits, we expect Treasury to issue additional guidance after enactment.
I. State tax relief
While the federal government has not yet extended the due date for corporate income tax returns or personal income tax returns, Arizona, Maryland and Oregon have indicated that they would conform to any federal filing extension.
California initially granted businesses the right to request a 60-day extension to file payroll reports and deposit California payroll taxes. The California governor also extended the due date for sales and use tax returns and returns for other taxes administered by the California Department of Tax and Fee Administration by sixty (60) days. Recently, the CA Franchise Tax Board granted further tax relief by extending the state deadline for:
(i) Partnerships and LLCs who are taxed as partnerships an additional ninety (90) days beyond March 15 to file tax returns and pay any taxes until June 15, 2020
(ii) Individuals to file their personal income tax returns and pay income tax beyond April 15th for a 60-day extension until June 15, 2020 and
(iii) Quarterly estimated tax payments otherwise due on April 15 are also granted a 60-day extension to pay by June 15, 2020.
Maryland has also extended the due date for businesses’ to make sales and use tax filings in March, April or May 2020 until June 1, 2020.
States that impose gross receipt taxes on businesses have also granted certain extensions to filers, including Oregon for its new commercial activity tax and Washington state for its Business and Occupation tax.
We expect more activity by governments in the areas of tax, filing and payment relief, and we will provide additional updates as more information becomes available.
If you have any questions about the federal and state tax relief for the Coronavirus or would like assistance in applying those relief provisions, please contact your DLA Piper contact.
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