Tax Alert: Tax Developments Addressing the Coronavirus from Washington

Changes in Economic Climate Due to Coronavirus Lead to Numerous Tax Updates

The issue gripping the country now is concern over the 2019 Novel Coronavirus (COVID-19). From individuals impacted by the virus to altered travel plans; from wild swings in the stock market to anxious businesses and employees; from March Madness to March Sadness – much has been cancelled or delayed. Now, the IRS and Congress have joined in this wave of activity with several tax changes in response to this virus. As the news about the Coronavirus changes rapidly, so too have these proposed tax developments in the last few days. Here is the latest. 

IRS: Delay in April 15th Tax Payments

On March 17, 2020, the Treasury Secretary Steven Mnuchin announced that due to the Coronavirus, it is delaying the due date for tax payments for the 2019 year from April 15, 2020 to July 15, 2020. Mnuchin spelled out the following provisions related to this delay: 

• The delay moves the due date for any individual tax payments from April 15, 2020 to July 15, 2020. This move governs any individual tax payments due for the 2019 year. Any balances owed by individual taxpayers for the 2019 year can be paid by July 15, 2020 without incurring any interest or penalties. This relief of no interest or penalties applies to individual’s tax payments of up to $1,000,000.
• The IRS indicates that if possible, individual tax returns should still be filed by the normal April 15, 2020 due date.
  • If an individual’s tax return shows a refund, they can file by April 15 and receive their refund soon thereafter.
  • If the individual’s tax return, however, shows a balance due, the tax return can be filed by April 15, 2020, but then the indicated balance due would not need to be remitted until July 15, 2020. The individual will not incur any penalties or interest with this 90-day delay in making this tax payment.   

• In addition, the IRS stated that corporations and other small businesses owing up to $10,000,000 can defer these tax payments from April 15, 2020, until July 15, 2020. The details of these other businesses were not provided yet. Again, this applies for tax payments up to $10,000,000 for the 2019 year. Again, no penalties or interest will be assessed.  

• The IRS has released an official notice dealing with this extension, which you can read here.

• There have also been questions and speculation about other possible tax provisions that might also be deferred by the IRS as a result of the Coronavirus. The IRS, however, did not provide any additional delays at this point. They will continue to study the matter and may make other announcements they deem necessary.  
• Finally, the IRS unveiled a Coronavirus page to their website on March 13, 2020. There is not much on this webpage yet, however, they did include IRS Notice 2020-15 released the other day on HDHP plans and HSAs. The IRS could add more resources to this in the coming days and weeks.

Congress: Coronavirus Legislation for Employees

On the legislative front, the House passed a Coronavirus relief bill early on March 14, 2020. H.R. 6201, Families First Coronavirus Response Act (FFCRA) was a bipartisan effort with the House and Administration (lead by Secretary Steven Mnuchin) working out the details. After passage by the House, it was discovered that some errors were made in drafting the bill, which needed to be resolved. These technical corrections were fixed by the House, and the bill was sent on to the Senate on March 17, 2020, which the Senate passed on March 18 and the President signed into law the same day; this is now enacted into law. Senate leaders would also like to introduce a larger economic stimulus package, and this will likely follow after passage of the House legislation (H.R. 6201).   

The bill addressed several issues dealing with the Coronavirus, and we will cover selected provisions. Two of the significant provisions impacting employees and employers are the “Emergency Family and Medical Leave Act (FMLA) Expansion Act” and the “Emergency Paid Sick Leave Act.” Employers will also be eligible for tax credits covering the employer’s portion of wages paid to employees taking either the paid FMLA leave or the paid sick leave.

Please note this legislation does not apply to all employers. The Emergency Family and Medical Leave Act, outlined further below, applies to employers with less than 500 employees, and some exceptions for businesses with less than 50 employees. The Emergency Paid Sick Leave Act, again, also outlined below, generally applies to businesses with less than 500 employees and government bodies. Once enacted, additional guidance will be needed from the IRS.

The Emergency Family and Medical Leave Expansion Act (Division C of FFCRA)

This section of the legislation provides employees of: (1) employers with fewer than 500 employees; and (2) government employers, who have been on the job for at least 30 days, with the right to take up to 12 weeks of job-related leave under the FMLA. This job-related FMLA would apply for any of the following reasons:

• To adhere to a requirement or recommendation to quarantine due to exposure to or symptoms of Coronavirus;
• To care for an at-risk family member who is adhering to a requirement or recommendation to quarantine due to exposure to or symptoms of Coronavirus; and
• To care for a child of an employee if the child’s school or place of care has been closed, or the childcare provider is unavailable, due to a Coronavirus.

After the two weeks of paid leave, employees will receive a benefit from their employers that will be no less than two-thirds of the employee’s usual pay.

Emergency Paid Sick Leave Act (Division E of FFCRA)

This section of the legislation requires: (1) employers with fewer than 500 employees; and (2) government employers to provide employees two weeks of paid sick leave, paid at the employee’s regular rate, to quarantine or seek a diagnosis or preventive care for coronavirus. They are to be paid at two-thirds the employee’s regular rate to care for a family member for such purposes, or to care for a child whose school has closed, or child care provider is unavailable, due to the Coronavirus.

• Full-time employees are entitled to two weeks (80 hours), and part-time employees are entitled to the typical number of hours that they work in a typical two-week period.

The bill ensures employees who work under a multi-employer collective agreement and whose employers pay into a multi-employer plan are also provided with leave.

Tax Credits for Paid Sick and Paid Family and Medical Leave (Division G of H.R. 6201)

There are two tax credits available to employers related to the above discussed leave programs. A payroll credit for required paid sick leave, and a payroll credit for required paid family leave.

A. Credit for Required Paid Sick Leave. Under the provision, an employer is allowed a credit against its payroll tax obligations for each calendar quarter in an amount equal to 100 percent of the qualified sick leave wages paid by the employer with respect to that calendar quarter. The provision defines qualified sick leave wages as wages and compensation paid by an employer which are required to be paid by reason of the Emergency Paid Sick Leave Act (Division E of R. 6201 – discussed above).

The Joint Committee on Taxation indicates the following explanation of the credit. The Emergency Paid Sick Leave Act requires certain employers to provide an employee with paid sick time to the extent that the employee is unable to work or telework due to a need for leave because:

1. 1. the employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
   2. the employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
   3. the employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis;

The amount of qualified sick leave wages considered for purposes of the credit for purposes 1, 2, and 3 above may not exceed $511 for any day (or any portion thereof) for which the individual is paid such sick time.

4. the employee is caring for an individual who is subject to an order described in clause (1) or has been advised as described in clause (2);

5. the employee is caring for the employee’s son or daughter if the school or place of care of the son or daughter has been closed, or the childcare provider of such son or daughter is unavailable due to COVID-19 precautions; or

6. the employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

The amount of qualified sick leave wages considered for purposes of the credit for purposes 4, 5, and 6 above may not exceed $200 for any day (or portion thereof) for which the individual is paid such sick time.

B. Credit for Required Paid Family Leave. Under the provision, an employer is allowed a credit against their payroll taxes imposed on the employer for each calendar quarter in an amount equal to 100 percent of the qualified family leave wages paid by the employer with respect to that calendar quarter. The provision defines qualified family leave wages as wages and compensation paid by an employer by reason of, the Emergency Family and Medical Leave Expansion Act (Division C of R. 6201 discussed above). This leave requires certain employers to provide public health emergency leave to employees under the FMLA. This requirement generally applies when an employee is unable to work or telework due to a need for leave to care for a son or daughter under age 18 because the school or place of care has been closed, or the childcare provider is unavailable, due to a public health emergency. The bill defines a public health emergency as an emergency with respect to COVID-19 declared by a Federal, State, or local authority. An employer that is required to provide this additional family and medical leave is allowed a tax credit in respect of the leave.

The first 10 days of public health emergency leave required under this expanded leave may consist of unpaid leave, after which paid leave is required. The paid leave is for the duration of the period provided in the Emergency Family and Medical Leave Expansion Act (a maximum of 10 weeks). The amount of required paid leave under the provision is based on an amount not less than two-thirds of an employee’s regular rate of pay, and the number of hours the employee would otherwise be normally work. Further, the paid leave required by the Emergency Family and Medical Leave Expansion Act may not exceed $200 per day and $10,000 in total. Under the provision, employers are entitled to a credit against their payroll taxes of up to 100 percent of qualified family leave wages paid by the employer during the quarter.  

Here for your reference is the JCT (Joint Committee on Taxation) Technical Explanation of Division G of the Tax Credit Portion of the H.R. 6201. 

Please click here for another resource. It a chart summarizing the key aspects of this legislation (H.R. 6201) for employers. It was from the House Ways and Means Committee.

What’s Next?

The IRS is continuing to monitor the situation. There are ongoing discussions and speculation that several other tax provisions involving COVID-19 may be modified or delayed by the IRS. There are also several other tax relief proposals under consideration by the Administration and Congress. It is uncertain which of these proposed ideas might be adopted and when. We will continue to watch these developments. Please contact your Sikich advisor with any questions you have.  

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