Families First Coronavirus Response Act (FFCRA) and The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) include provisions to help small businesses.

 

Here are some of the highlights. At the end of this article, we also provide a link to download the Guide to the CARES Act for your convenience.

 

Emergency Family and Medical Leave Expansion Act

The first section of the FFCRA that applies to businesses pertains to an expansion of the U.S. Family and Medical Leave Act (FMLA). Until the end of 2020, employers with fewer than 500 employees will now be required to provide employees with up to 10 weeks of paid FMLA. The first two weeks of the normal 12-week FMLA leave may be provided unpaid, but an employee may be able to be paid through the paid sick leave provision or other paid leave the employee has available.

 

Emergency Paid Sick Leave Act

The second leave provision of the FFCRA that affects businesses is emergency paid sick leave. Until the end of 2020, employers with fewer than 500 employees must offer paid sick leave to those who meet criteria associated with the public health emergency.

 

Which employees are eligible?

The new FFCRA paid sick leave is available to any employee if they are unable to work (in-house or remotely) because they are:

  1. 1. Subject to federal, state, or local quarantine or isolation related to COVID-19;
  2. 2. Have been advised by their doctor to self-quarantine due to COVID-19;
  3. 3. Experiencing symptoms of COVID-19 and seeking a medical diagnosis;
  4. 4. Caring for a family member subject to a quarantine order or self-quarantine;
  5. 5. Caring for children if schools are closed or their caregiver is unavailable because of the COVID-19 health emergency; or
  6. 6. Experiencing substantially similar conditions as specified by the Secretary of Health and Human Services.

 

Tax Credits for Paid Sick Leave and Paid FMLA

The FFCRA adds a new statutory basis (Section 102(a)(1)(F)) for leave under the Family and Medical Leave Act (FMLA), providing up to 12 weeks of Emergency FMLA leave to eligible employees who are “unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable, due to a public health emergency.”

 

The Emergency Family and Medical Leave Expansion Act provides that the first 10 days of Emergency FMLA leave may be unpaid. Employees may choose (but cannot be forced) to substitute any accrued paid vacation leave, personal leave, or medical or sick leave (including paid leave under the Emergency Paid Sick Time Act) to which they are otherwise entitled for unpaid leave during this initial 10 days of Emergency FMLA. Thereafter, covered employers must provide eligible employees with up to ten (10) weeks of Emergency FMLA leave, paid at two-thirds of the employees’ regular rate of pay, up to $200 per day and $10,000 total. Under certain circumstances, an employer who is a party to a multi-employer collective bargaining agreement may fulfill its obligations to provide paid Emergency FMLA by making an equivalent contribution to the plan fund.

 

This new Section on Emergency FMLA, like the Emergency Paid Sick Leave Act, only applies to private employers with fewer than 500 employees. Unlike the Emergency Paid Sick Leave Act, however, which adopts the FLSA’s broad definition of “employee,” Emergency FMLA is available only to those employees who have worked at their employers for at least 30 days at the time of their leave request. Mirroring usual reinstatement rights elsewhere in the FMLA, employers with between 25 and 500 employees must restore employees returning from Emergency FMLA to their same job or an equivalent position if the employee’s position is no longer available.

 

However, an employer with fewer than 25 employees may not be required to return an employee taking Emergency FMLA to work if:

  1. 1. the employee’s job no longer exists due to economic conditions or changes in operational conditions caused by the public health emergency during the Emergency FMLA period; and
  2. 2. the employer has made reasonable effort to find the same or equivalent position for the employee.

 

In such a case, the employer must contact the employee if an equivalent position becomes available within one year of the date on which the employee’s Emergency FMLA ends. The Act also exempts certain small employers from civil actions by employees otherwise allowed by the FMLA.

Finally, and perhaps most notably from a practical perspective, The Emergency Family and Medical Leave Expansion Act is silent and/or ambiguous in two areas which, unless clarified by the Department of Labor, may be of significant concern to covered employers attempting to incorporate administration of the new Emergency FMLA rights:

  1. 1. The Act does not define how or whether a covered employer is entitled to receive information and/or documentation from an eligible employee of the employee’s need to take the new Emergency FMLA.
  2. 2. The Act does not specify whether current employees who have already used some or all of their 12-week FMLA entitlement for other permissible reasons under the FMLA should be deemed to have only what remains of that original 12 weeks of FMLA entitlement to use as Emergency FMLA, or whether they will have a fresh 12 weeks of Emergency FMLA with the enactment of the new law.

 

To help employers afford the new paid sick leave and paid FMLA benefits, companies are able to seek reimbursement through tax credits.

Each quarter, private companies are entitled to fully refundable tax credits for both paid sick leave and paid FMLA. The tax credits are applied against an employer’s already-owed Social Security taxes. However, if that offset is not enough to cover these payouts to employees, then the Treasury Department is authorized to help cover the rest with cash payouts.

 

In addition, the Treasury is directed to issue regulations to waive penalties for businesses not submitting their payroll taxes if they do so in anticipation of a refund under the new law. In addition, the Treasury Department has said they will soon be releasing a form for small businesses to request an expedited advance on their refund.

 

Additionally, an employer’s tax credit is increased by the amount the employer pays to maintain health care related to new sick leave and FMLA benefits. This will allow a company to maintain health care benefits while the employee is on leave.

 

Paycheck Protection Program (PPP)

The Paycheck Protection Program, one of the largest sections of the CARES Act, is the most important provision in the new stimulus bill for most small businesses. This new program sets aside $350 billion in government-backed loans, and it is modeled after the existing SBA 7(a) loan program many businesses already know.

 

Businesses and nonprofit organizations with 500 or fewer employees, as well as sole proprietors, independent contractors and self-employed individuals, may be eligible for a new loan program from February 15, 2020 to June 30, 2020. This program will provide federally guaranteed loans, in amounts determined by a formula, with a maximum loan amount of $10,000,000. For more information, ADP has a good article on this topic.

 

Business tax changes

The CARES Act makes select changes to taxes and tax policies in order to ease the burden on businesses impacted by COVID-19. These changes include:

  • Businesses are eligible for an employee retention tax credit if
    • your business operations were fully or partially suspended due to a COVID-19 shut-down order; or
    • gross receipts declined by more than 50% compared to the same quarter in the prior year. Eligible businesses can get a refundable 50% tax credit on wages up to $10,000 per employee. The credit can be obtained on wages paid or incurred from March 13, 2020, through December 31, 2020.
  • Businesses and self-employed individuals can delay their payroll tax payments. These payments, the employer share of Social Security tax owed for 2020, can instead be deferred and paid over the next two years. Fifty percent must be paid by the end of 2021 and 50% must be paid by the end of 2022. (Note: The ability to defer these taxes does not apply to a business that has a Paycheck Protection loan forgiven.)
  • Businesses that have net operating losses (NOLs) have some limitations relaxed. If your business had an NOL in a tax year beginning in 2018, 2019, or 2020, that NOL can be now be carried back five years instead. This may improve cash flow and liquidity for some businesses. Pass-through businesses and sole proprietors will also be able to take advantage of the relaxed NOL limitations.
  • Businesses will be able to increase their business interest expense deductions on their tax returns. For 2019 and 2020, the amount of interest expense businesses are allowed to deduct on their tax returns is increased to 50% from 30% of taxable income.
  • Businesses, especially those in the hospitality industry, will be able to immediately write off costs associated with improving facilities, increasing cash flow.
  • The government will make a temporary exception from the excise tax normally applied to alcohol, if that alcohol was used to produce hand sanitizer in 2020.

 

Extended Filing deadline

In addition to the CARES Act, taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax.

 

Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the July 15 deadline, can request a filing extension by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Businesses who need additional time must file Form 7004.

 

GUIDE TO THE CARES ACT

Sources:

https://www.dol.gov/general/topic/benefits-leave/fmla

https://www.dol.gov/agencies/whd/pandemic/ffcra-employee-paid-leave

https://www.sbc.senate.gov/public/index.cfm/guide-to-the-cares-act

https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources

https://www.adp.com/resources/articles-and-insights/articles/e/eow-coronavirus-aid-relief-and-economic-security-act-part-2.aspx

https://www.irs.gov/newsroom/irs-employee-retention-credit-available-for-many-businesses-financially-impacted-by-covid-19

https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf

Originally published April 02, 2020.

Written by Shawn Anderson

What I like the most about what I do is talking to people and learning about their business. Consulting with them about tax incentives and how they can enhance their business is fun because every business is different and I learn something new every day. When I am not talking tax incentives, you will find me enjoying Arizona living or cruising the world!