What Employers Must Know in regards to the Household and Medical Depart Tax Credit score

Coronavirus Aid, Aid and Economic Security Act (CARES) made the most tax headlines last year. Another new law passed just days before the CARES Act – the Family First Coronavirus Response Act (FFRCA) – created a new tax credit for employers who paid vacation time to workers affected by the COVID-19 pandemic grant. Now the Consolidated Appropriations Act (CAA) expands and modifies this valuable tax credit.

Background: Under the FFCRA, certain employers are eligible for tax credits for their 2020 returns. The FFCRA loan can be used for the cost of providing paid sick leave and extended family and sick leave to employees for reasons related to the COVID-19 pandemic for the period April 1, 2020 to December 31, 2020 will.

The credit is available to businesses and tax-exempt organizations that have fewer than 500 employees at the time of vacation. The Ministry of Labor (DOL) has issued guidelines on the rules for the 500-employee threshold.

The FFCRA credit offsets the social security tax component of federal income tax. Eligible employers could claim the credits in their income tax returns or benefit more quickly by reducing their federal income tax deposits. If the employer does not have sufficient wage taxes to cover the amount of the credits, the employer can request the IRS to prepay the credits.

If the amount of the credits exceeds the employer’s share of the social security tax on all wages paid to all employees for a quarter, the surplus is treated as an overpayment. This amount is then reimbursed to the employer.

Paid emergency leave must be offered to all employees, regardless of how long they have been with the company. This applies to employees who cannot work and who meet one of the following conditions:

  • The employee is subject to quarantine regarding COVID-19.
  • The employee was advised to self-quarantine regarding COVID-19.
  • The employee has symptoms of COVID-19 and is seeking a medical diagnosis.
  • The employee takes care of a person who is being quarantined.
  • The employee takes care of a child when the school or a child care worker is closed.
  • Any other substantially similar condition established by the Department of Health and Human Services (HHS).

Full-time employees are entitled to up to 80 hours of paid sick leave. Part-time workers are entitled to vacation equal to the number of hours they work on average over a two-week period.

Update: As mentioned above, the FFCRA balance should expire on December 31, 2020. Now the CAA is extending it March 31, 2021 with certain changes.

In particular, employers are no longer required Grant paid sick leave or extended FMLA paid leave to workers due to the COVID-19 pandemic while workers are no longer entitled to paid leave under the FFCRA. However, employers may voluntarily choose to give these workers paid vacation days. If so, they can collect tax credits for amounts paid by March 31, 2021.

Note that the FFRCA balance has several other folds. Contact your professional tax advisor for more information.

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