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How Employers Can Obtain Timely Payment: Tax Credits Under Families First Coronavirus Response Act

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Vikram Agarwal
March 26, 2020

The Families First Coronavirus Response Act (“Act”) became law on March 18, 2020. The Act goes into effect on April 2, 2020 and will expire on December 31, 2020. Implications to employers and employees have been covered under separate BKK posts which can be found here. This post will provide employers an update with guidance on how the tax credits will work.

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As I recently discussed, the Act provides for a refundable tax credit for qualified family leave and sick leave wages paid by an employer. On March 20, 2020, the U.S. Treasury Department, IRS, and DOL announced follow-up guidance on how employers can utilize the tax credits.

Key Takeaways

Employers can offset tax credits earned under the Act against quarterly payroll payments made with their Form 941 for the employee’s portion of withheld income tax, social security tax and Medicare tax. Employers may also apply excess tax credits under the Act against the employer’s portion of social security taxes and Medicare taxes due with such quarterly reports. If the employer still has excess tax credits earned under the Act, then the employers will be able to file for an accelerated request for payment from the IRS for any excess. The cash payment from the IRS is expected to be paid within two weeks. The IRS has announced it will provide the form and further guidance on the precise mechanics on the process next week.

So, for example, if an employer earns $5,000 in tax credits under the Act and is otherwise required to deposit $8,000 in connection with its quarterly Form 941 filing, the employer can offset $5,000 of the $8,000 deposit requirement and pay only $3,000 for its deposit. If, on the other hand, an employer earned $10,000 in tax credits under the Act, and still had to deposit $8,000 with its quarterly Form 941 filing, the employer could offset the full $8,000 and file an accelerated request for the remaining $2,000 in tax credits for a $2,000 cash payment.

We will be providing updates with developments regarding the tax credits and further relief measures to be enacted as they are announced. If you need any assistance in this matter, please contact me.