4/22/20 - Cash Flow Relief With Reduced Payroll Tax Deposits

There has been a lot of Coronavirus legislation and information regarding it. Most of it has been an attempt to keep or put cash into the hands of the public for their and the economy's benefit. The legislation below which was previously sent and is on our website is designed to provide immediate cash flow relief to businesses that are continuing to pay wages to employees. They are as follows:

  1. The Families First Coronavirus Response Act (FFCRA)

  2. Employee Retention Credit

  3. Employer Payroll Tax Expense Deferral

The idea is for you to continue to pay your employees if at all possible, by allowing you to reduce or defer payroll tax deposits. Please be aware that there have been basically no extensions for the payment of payroll taxes and the filing of payroll tax returns except for what is indicated below. A summary of the above legislation regarding how the credits and deferral work is below. Please note there are still a number of unanswered questions, such as how these will be reported on payroll tax returns. These benefits are available immediately for cash flow relief. 1 - The Families First Coronavirus Response Act (FFCRA) As of April 2nd, for employers with less than 500 employees, and for an employee who is unable to work because of Coronavirus quarantine or self-quarantine or Coronavirus symptoms and is seeking a medical diagnosis, a credit may be taken against payroll tax deposits for sick leave paid at the employee's regular rate of pay, up to $511 per day and $5,110 in total, for up to 10 days. For an employee who is caring for someone with Coronavirus, or is caring for a child because the child's school, child care facility, or child care provider is closed or unavailable due to the Coronavirus, employers may take a credit for two-thirds of the employee's regular rate of pay, up to $200 per day and $2,000 total, for up to 10 days. An additional 10 weeks is also available. 2 - The Employee Retention Credit A business of any size is eligible for the credit if:

  1. It is fully or partially shut down by government order due to COVID-19 during part or all of the calendar quarter.

  2. It has less than 100 employees, the employer may also be eligible if gross receipts are below 50% of the comparable quarter in 2019. Then once the employer's gross receipts go above 80% of the comparable quarter in 2019, it no longer qualifies after the end of that quarter.

This comparison must be made each calendar quarter.

Effective March 13th, an employer can take a credit equal to 50% of an employee's salary up to a total of $10,000 of qualified wages paid, which is a maximum credit of $5,000 per employee. Qualifying Wages for the Employee Retention Credit: The credit can only be taken on qualifying wages which is different depending on the size of the employer:

  • Employers with less than 100 employees: If the employer had 100 or fewer employees on average in 2019, the credit is based on wages paid to all employees, regardless if they worked or not. If the employees worked full-time and were paid for full-time work, the employer still receives the credit.

  • Employers with more than 100 employees: If the employer had more than 100 employees on average in 2019, the credit is allowed only for wages paid to employees who did not work during the calendar quarter.

3 - Employer Payroll Tax Expense Deferral

For the period beginning on March 27th and ending December 31st, the employer's matching portion of Social Security contributions may be deferred. The first 50% of what was deferred would be due 12/31/21 and the balance would be due 12/31/22. Important: This applies to only the 6.2% employer's matching portion of Social Security contributions; it does not apply to the 1.45% employer's matching Medicare contributions. How to Apply the Credits: First, the credits must be calculated in the order they are presented above, with the FFCRA credit being calculated first, followed by the Employee Retention Credit and then the Employer Payroll Tax Expense Deferral. Please keep in mind the limits on some of the credits, such as 10 days for the FFCRA credit and the maximum of $5,000 for the Employee Retention credit. Employers can immediately recoup these credits by reducing their Federal payroll tax deposits by the amount of the credits that were calculated. If the credits exceed the amount due then no deposit is made and a refund may be claimed. Advance Refund if Credits Exceed Payroll Taxes Due for the Quarter: If an employer's credits are expected to exceed their payroll taxes due for a quarter then an advance refund claim can be made using Form 7200. The IRS instructions for this new form say the advance refund claim is limited to only the credits under FFCRA. However, the IRS is expected to allow employers to include the amounts for the Employee Retention Credit as well. We will provide updates as they become available. Please note that an employer may not use the same wages to qualify for the above credits and the deferral of taxes, and may not take any of these benefits if also receiving a Paycheck Protection Program loan. Eligible employers are entitled to an additional tax credit based on the cost to maintain health insurance coverage for the eligible employees.


Your professionals at Castellano Korenberg & Co. are always available to assist you through this tough time of trying to make sense of all the new regulations being passed. Stay up to date with the most recent information by visiting castellanokorenberg.comcall us at 516-937-9500, or contact your CK professional for more information.

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