Covid-19 IRS Payroll Tax Credits Available to Small & Midsized Employers

March 25, 2020

Last week, 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.

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 is expected to be released later this week.

Key features of the IRS program include:

• 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: Employers receive 100% reimbursement for paid leave, including health insurance costs. Employers will face no payroll tax liability and self-employed individuals will receive an equivalent credit.
• Fast Funds: Reimbursement will be quick and easy to obtain, with an immediate dollar-for-dollar tax offset against payroll taxes. Where a refund is owed, the IRS will send the refund as quickly as possible
• 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.

Key details, background information and examples of how the credits will work are in IRS News Release 2020-57: Treasury, IRS and Labor announce plan to implement Coronavirus-related paid leave for workers and tax credits for small and midsize businesses to swiftly recover the cost of providing Coronavirus-related leave.

Additional guidance, including how to claim the credits in advance, is being prepared and will post to the Coronavirus Tax Relief page on IRS.gov as soon as it is available.