Extension of FFCRA Sick Leave Tax Credits
In previous communications, we’ve outlined the mandated sick leave that certain employers were required to provide to their employees under the Families First Coronavirus Relief Act (FFCRA). The Consolidated Appropriations Act, signed into law on December 27, 2020, extends the tax credits related to that leave through March 31, 2021, but does not extend the mandate to provide employees with leave. For employers who choose to voluntarily provide leave to assist in the nationwide battle against the coronavirus, these credits are claimed on an Employer’s quarterly Form 941.
We recommend that businesses work with their payroll processors or payroll departments to ensure appropriate wage codes are set up to capture wages paid related to this leave. We also recommend that employers create forms for their employees to request the leave as documentation to support the credits received.
Self-employed individuals are also eligible for the tax credit related to COVID sick leave. The legislation clarifies that the self-employed individuals can use the prior year net earnings from self-employment to calculate the credit. If you are self-employed and were out of work due to a COVID-19 quarantine or diagnosis, be sure to communicate this to your tax preparer in 2021.
Expansion and Extension of Employee Retention Tax Credits
Originally created in the CARES Act passed in March 2020, employee retention credits were previously not available to businesses that received PPP loans. The recently passed legislation in December 2020 retroactively expanded the eligibility for these credits to companies that received PPP loans. The legislation also expanded and extended the credits for the period of January 1, 2021 through June 30, 2021.
Qualifications and credit calculations for wages paid in 2020:
- Employers must have experienced a shut down order by the government or experienced a drop in revenue for the quarter compared to 2019 of at least 50%.
- Employers with more than 100 Full Time Equivalent employees, the credit can only be claimed on for wages paid to employees that were not working or providing services are eligible.
- Employers with fewer than 100 FTEs, all wages are eligible for the credit, provided they meet the test in item one above.
- The credit is calculated as 50% of the employee’s wages up to $10,000 of wages for the year.
Qualifications and credit calculations for wages paid in 2021:
- Employers must have experienced a shut down order by the government or experienced a drop in revenue for the quarter compared to 2019 (note the comparison to 2019 continues into 2021) of at least 20%.
- Employers with more than 500 Full Time Equivalent employees, the credit can only be claimed on wages paid to employees that were not working or providing services are eligible.
- Employers with fewer than 500 FTEs, all wages are eligible for the credit, provided they meet the test in item one above.
- The credit is calculated as 70% of the employee’s wages up to $10,000 of wages for each quarter of 2021. Note the maximum limit for 2021 is applied quarterly versus annually in 2020.
If an employer received a PPP loan, they may not use wages for forgiveness and the employee retention credit. Employers that have already filed for forgiveness and are eligible for these credits should await guidance from the Treasury before claiming the credits.
This a brief overview of these tax credits and there are additional continuing qualifications requirements. If your business qualifies for either of the items in items one, contact your Mitchell Wiggins team member for additional analysis.
VEC Online Filing Requirement
The Virginia Employment Commission is requiring quarterly reports to be filed online for most employers starting in 2021. Due to these changes, employers’ annual rate change calculations are not being mailed in 2021. Employers should access the VEC website and obtain their rate change information and provide that information to their payroll provider or update their payroll software accordingly. Employers can submit a waiver request for undue hardship if electronic filing is not feasible.