The CARES Act created several payroll tax deferral opportunities but also left employer board members and executives asking what exactly was deferred and worrying about “responsible person” liability.
In particular, Section 2302 of the CARES Act (Public Law 116-136) allows all employers to defer the deposit and payment of the employer’s portion of Social Security taxes for a minimum of 12 months and, for some deferrals, a period of more than 32 months. Despite the confusion among some advisers, unlike the employee retention tax credit available under the CARES Act, this opportunity to defer employer Social Security taxes is even available for those employers applying for Small Business Administration loans.
Decisions aimed at preserving your workforce in response to the COVID-19 pandemic can have a long-term impact on your business. As you prepare to emerge from government shutdown orders, recall that your workforce is your single most valuable asset.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides employee retention tax credits to help employers defray the cost of keeping their workforces intact in the post-COVID business environment. At the same time, taking advantage of these credits requires careful, upfront planning, particularly in light of the recent FAQs issued by the IRS. During our interactive discussion, we will address the critical matters that you need to understand when planning for these credits, including:
What constitutes a partial suspension of business operations, and how government shutdown orders impact those suspensions under the FAQs
Which types of compensation and benefits are considered “qualified wages” under the FAQs, including the treatment of health expenses
How the FAQs differ from the Joint Committee on Taxation Bluebook
How aggregation rules can defeat or enable an employer’s qualification to qualify for employee retention tax credits
What you should do to claim and report the credits on IRS quarterly tax reporting forms
Which employment law matters you should consider before taking employee retention tax credits
Have an (anonymous) question that you would like us to answer? Be sure to submit it via the registration link.
In response to the COVID-19 pandemic, Germany has introduced special occupational safety measures to protect the health of employees, restore economic activity and interrupt the chains of infection. On April 16, 2020, Federal Minister of Labour and Social Affairs (Bundesminister für Arbeit und Soziales) Hubertus Heil and the CEO of the German statutory accident insurance (Deutsche Gesetzliche Unfallversicherung) Dr. Stefan Hussy presented a unified occupational health and safety standard for the duration of the Coronavirus pandemic. The regulations took effect immediately.
Her Majesty’s Revenue and Customs (HMRC) has issued its sixth update to the Coronavirus Job Retention Scheme Guidance (Guidance). Separately, the UK Treasury has issued a Treasury Direction (Direction) to HMRC setting out the legal framework for the Scheme. There are few points that have been clarified in the Guidance, but there is one glaring inconsistency between the Guidance and the Direction that will be of understandable concern to employers – the requirement that there is a written record of the furlough arrangement.
How should US employers approach the Coronavirus? With rapid developments in local, state and federal guidance and law, the appropriate approach for each employer will vary depending on the nature of the work, industries served, location(s), size, amongst other considerations. We recently updated these FAQs to provide you with the latest developments and best practices for your business.
Lisa Schmitz Mazur discusses what states are doing to make telehealth more available, the changing Medicare reimbursement landscape and compliance considerations for providers implementing telehealth during this time.
SUB-Pay Plans: An Alternative to Severance Programs
While the coronavirus pandemic wreaks havoc on the economy and jobs, employers consider disaster-related employee benefit structures, such as easily administered qualified disaster assistance relief programs and the financially attractive severance alternative known as “supplemental unemployment benefit plans” or “SUB-pay plans.” Compared to the typical severance program, restructuring a temporary or permanent layoff program as a SUB-pay plan can yield financial and tax savings exceeding 30% of an employer’s typical severance costs while also providing FICA tax savings to employees of 7.65%.
Much has been written about the new CARES Act distribution that allows impacted COVID-19 participants to access up to $100,000 in their tax-qualified defined contribution plan penalty-free and with income taxes spread over three years. However, the CARES Act legislation applies to all “eligible retirement plans” as defined in Code Section 402. So technically the CARES Act also applies to defined benefit plans.
Consider, the following examples.
A cash balance plan permits lump sum distributions to terminated participants. If this cash balance plan decides to add CARES Act distributions, and if its record keeper will administer the provisions, terminated participants who meet the CARES Act conditions can access their funds penalty-free and spread the income tax consequences over three years.
In addition, if a plan will offer a lump sum window during 2020, then participants who qualify under the CARES Act distribution rules could elect a lump sum and use the favorable tax treatment for the applicable portion of the distribution, up to $100,000.
Note that the $100,000 limit applies across all plans, so a participant in both a defined contribution plan and a defined benefit plan will need to ensure that the limit is applied to all plans in which he or she participates.
Given all the difficulties that both employees and retirees are experiencing with COVID-19, a plan sponsor may want to explore all available COVID-19 distributions under the CARES Act, including options for its defined benefit plan with its actuaries, record keepers, and attorneys.
The CARES Act provides for payroll tax relief, including employee retention tax credits and the deferral of all employer Social Security tax payments to help employers in the face of economic hardship related to the COVID-19 pandemic. Employers should work with their tax advisors, payroll providers, and payroll departments to immediately implement these valuable savings. The broad-based employer and employee relief provided under the CARES Act includes two forms of payroll tax relief related to an employer’s Social Security tax payments: deferral of all employer Social Security tax payments, and employee retention tax credits of up to $5,000 for qualified wages paid to employees. All employers should consider taking advantage of these valuable tax savings to alleviate the broad and deep impact of the COVID-19 pandemic on businesses and their employees.
The Families First Coronavirus Response Act (H.R. 6201) was signed into law on March 18, 2020. This summary reflects these changes that includes:
requiring employers to provide two weeks of paid sick leave in certain situations and provide subsidized leave under the Family and Medical Leave Act;
providing additional nutrition assistance to affected areas and populations through the US Department of Agriculture (USDA) and the US Department of Health and Human Services (HHS);
and requiring private health plans to cover diagnostic testing for COVID-19 at no cost to customers.
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