Federal Aid Package Helps Individuals Affected By Coronavirus
Mar 19, 2020
Provided by BDO Alliance, USA
The Families First Coronavirus Response Act (H.R. 6201), became law on March 18, 2020. The Act guarantees free testing for the novel coronavirus (COVID-19), establishes emergency paid sick leave, expands family and medical leave, enhances unemployment insurance, expands food security initiatives, and increases federal Medicaid funding.
The Act includes up to 80 hours of emergency paid sick leave for workers who are unable to work while they are sick or complying with COVID-19 restrictions or caring for school-age children due to the closure of schools or child care facilities, as well as paid family and medical leave that employees will be able to use to care for family members (not for personal illness) for up to 12 weeks. The first 10 days of an emergency family and medical leave may be unpaid unless employees opt to use accrued paid time off for those days.
The mandatory paid leave provisions apply to employers with fewer than 500 employees and government employers, with exceptions for health care workers and first responders. Self-employed individuals would be eligible for the new benefits provided under the Act. It is not clear if individuals who have self-employment income from their partnership or limited liability company would be eligible for the new self-employed benefits, as the Act does not specifically address those situations. Employers with 500 or more employees would not be subject to those rules. Employers who are required to provide paid time off would need to initially bear the costs of paying their employees, but the federal government would provide payroll tax credits to help cover those costs.
Background. Currently, the federal Family Medical Leave Act of 1993 (FMLA) provides eligible employees up to 12 workweeks of unpaid leave a year and requires group health benefits to be maintained during the leave as if employees continued to work instead of taking leave. Employees are also entitled to return to their same or an equivalent job at the end of their FMLA leave. Special rules apply to military personnel.
To be eligible for FMLA, an employee is required to have been employed by their employer for a year, worked for 1,250 hours, and worked in a location where there are 50 other employees within a 75-mile radius. The FMLA applies to all private-sector employers who employ 50 or more employees for at least 20 workweeks in the current or preceding calendar year (including joint employers and successors of covered employers). Many states have enacted laws that are similar to federal FMLA, which apply to smaller employers who may be exempt from federal FMLA. The FMLA also applies to federal, state and local employers. These current provisions remain available for qualifying employees.
Employer Mandates
Emergency Paid Sick Leave. Through December 31, 2020, the Act requires employers with fewer than 500 employees and government employers to provide all employees (including union employees and regardless of how long the individual worked for the employer but excluding health care workers and first responders) with 80 hours (e.g, 10 business days) of emergency paid sick leave for full-time workers (pro-rated for part-time employees or employees with varying work schedules) for employees who are unable to work or telework because the employee:
- Is subject to a federal, state, or local COVID-19 quarantine or isolation order;
- Has been advised by a health care provider to self-quarantine because of COVID-19;
- Is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
- Is caring for an individual subject to or advised to quarantine or isolation;
- Is caring for a son or daughter whose school or place of care is closed, or child care provider is unavailable, due to COVID-19 precautions; or
- Is experiencing substantially similar conditions as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.
Generally, employers would pay employees at their regular rate of pay for emergency sick leave, capped at $511 per day ($5,110 in the aggregate) if the leave is taken for an employee’s own illness or quarantine (i.e., for the first three bullets above). Employers would pay employees two-thirds of their regular rate of pay for emergency sick leave, capped at $200 per day ($2,000 in the aggregate) if the leave is taken to care for others or due to school closures (i.e., for the last three bullets above).
An employer cannot require an employee to use other paid leave before using this paid leave. Employers would not be able to require employees to find replacement workers to cover their shifts if employees use emergency paid sick leave. The federal government is supposed to provide a model notice within seven days after enactment, which employers would be required to post at their workplace, informing employees of their right to emergency paid sick leave. The U.S. Department of Labor is directed, within 15 days after enactment, to issue guidelines on how to calculate the amount of emergency paid sick leave. The Department of Labor also has the authority to issue regulations to exempt small businesses with fewer than 50 employees from having to provide emergency paid sick leave to employees who need to care for a son or daughter whose school or place of care is closed, or child care provider is unavailable, due to COVID-19 precautions if the imposition of such requirements would jeopardize the viability of the business as a going concern.
Employers would face penalties for failing to comply with the new emergency paid sick leave rules and are prohibited from discriminating against employees who take emergency paid sick leave. Eligible employees could use emergency paid sick leave before using new, emergency paid family and medical leave created by the Act.
FMLA Amendments. The Act would add provisions to the FMLA to provide employees (including union employees) who have been employed for at least 30 days by employers with fewer than 500 employees or government employers, with the right take up to 12 weeks of job-protected leave through December 31, 2020, if the employee is unable to work or telework due to having to care for a child under age 18 if the child’s school or place of child care has been closed (or the child care provider is unavailable), due to the COVID-19 public health emergency. Employers may elect to exclude health care workers and first responders from taking this public health emergency FMLA.
The first 10 days of FMLA under these new provisions may be unpaid. Employees can use other paid time off such as vacation, sick days, sabbatical, or emergency paid sick leave to cover that gap, but employers cannot require employees to use their accrued paid time off before using these 12 weeks of extended FMLA leave. Employers would pay employees two-thirds of their regular rate of pay for this emergency FMLA leave, capped at $200 per day ($10,000 in the aggregate per employee). Adjustments would be made to the amount of paid time off for employees with varying schedules.
The Act gives the U.S. Department of Labor authority to issue regulations that would exclude certain health care providers and emergency responders from being able to take emergency family and medical leave. The Department of Labor also has the authority to issue regulations to exempt small businesses with fewer than 50 employees from the emergency family and medical leave requirements if the imposition of such requirements would jeopardize the viability of the business as a going concern. The Act would also exempt employers with fewer than 50 employees in a 75-mile radius from civil damages in an FMLA lawsuit.
Under the Act, covered employers (those with less than 500 employees) are required to hold an employee’s job open for them until the end of the leave period. However, an exception applies to employers with fewer than 25 employees if the employee’s position no longer exists due to economic conditions or other changes in the employer’s operations that affect employment and are caused by the COVID-19 crisis, and the employer made reasonable efforts to restore the employee’s job. And, if those efforts failed, the employer agrees to reinstate the employee if an equivalent position becomes available within a year.
The Act creates new, refundable payroll tax credits for employers to help cover the costs of this new paid sick and family leave.
Payroll Tax Credits
To assist employers who are required to provide emergency paid sick leave or FMLA leave under the programs described above, the Act provides for a refundable tax credit applied against the employer’s portion of Social Security or Railroad Retirement Tax Act (RRTA) tax for amounts paid under those programs. The credit is equal to 100% of the compensation paid in each calendar quarter to employees who are not working for the reasons enumerated above, subject to the following limitations:
For payments to an employee who needs time off for self-isolation, diagnosis, or care of a COVID-19 diagnosis, or compliance with a health care provider’s recommendation or order, the credit is capped at $511 of eligible wages per employee per day. For payments to an employee who needs time off to care for a family member who has been exposed to or diagnosed with the COVID-19, or a child under age 18 whose school or place of care has been closed, the credit is capped at $200 of eligible wages per employee per day. The credit for emergency paid sick leave wages is only available for a maximum of 10 days per employee over the duration of the program. For expanded FMLA, the credit is capped at $200 of eligible wages per employee per day and $10,000 for all calendar quarters.
Both of the credits are increased by any amounts paid or incurred by the employer to maintain a group health plan, to the extent those expenses are (1) excluded from the employee’s gross income under the tax code and (2) “properly allocable” to the respective qualified sick or FMLA wages required to be paid under the Act. The exact method of allocation will be provided by regulation at a later date, but the Act provides that the allocation will be treated as properly made if done “on the basis of being pro-rata among covered employees and pro-rata on the basis of periods of coverage.”
If the credit exceeds the employer’s total liability for Social Security or RRTA tax for all employees for any calendar quarter, the excess is refundable to the employer. The employer may choose not to apply for the credit. Further, to prevent a double benefit, the employer cannot obtain a deduction for the amount of the credit. In addition, employers may not receive the credit in connection with wages for which a credit is allowed under Section 45S (credit for paid family and medical leave).
Similar rules apply to a self-employed individual that allows a refundable tax credit against the individual’s self-employment tax. The credit is capped at the lesser of the amounts that apply to eligible wages per employee or the individual’s lost self-employment income. The House-passed version of the Act provides guidance on how to determine the individual’s lost income due to the coronavirus.
Notably, required payments for emergency paid sick leave or FMLA under the Act will not be considered wages for purposes of calculating the employer’s portion of the Social Security or RRTA tax. In addition, the tax credits available to an employer are increased by the amount of the employer’s liability for Medicare tax on wages paid under the Act, effectively exempting the emergency sick leave and FMLA payments from that tax as well. In this way, the Act provides employers with two tax benefits: (1) refundable credits against the employer’s portion of Social Security or RRTA tax; and (2) an exemption from, or credit against, the employer’s portion of Social Security or RRTA and Medicare taxes on the wages required to be paid under the Act.
However, the law does not exempt these payments from the definition of wages for the purpose of other taxes (including the employee’s portion of Social Security, RRTA and Medicare taxes).
The Act ensures there is no negative impact to the Social Security program caused by the tax credit or the exemption of sick pay and family leave pay from Social Security tax by authorizing a transfer of funds from the General Fund to the Social Security and disability insurance trust funds to replace the lost employer contributions. The tax provisions discussed herein will apply beginning on a date to be determined by the Secretary of the Treasury after the enactment of the Act and ending on December 31, 2020.
Categories: Other Resources, Tax Compliance, Tax Planning
Wayfair Update: State & Local Tax Landscape Altered
Oct 30, 2019
Last year, the U.S. Supreme Court found in favor of the State of South Dakota by expanding the definition of in-state nexus to include a “virtual presence” in South Dakota v. Wayfair, Inc. The Supreme Court approved the South Dakota law imposing filing requirements on businesses that have $100,000 of gross receipts or 200 transactions with customers in the state. Many states have adopted those thresholds, but others have altered them slightly.
Since the Supreme Court’s decision, many states have enacted legislation similar to South Dakota’s rule expanding sales tax conditions to require more businesses to register and file sales tax returns. Businesses can now be required to collect sales tax even if they do not have a physical presence in a state, so long as it meets some minimum thresholds.
Recently, Ohio and Pennsylvania adopted modified economic nexus provisions:
Ohio
In response to the U.S. Supreme Court decision in Wayfair, Ohio has adopted an economic sales & use tax nexus standard. The new standard replaces the traditional physical presence nexus standard. Under House Bill 166, effective August 1, 2019, a seller is presumed to have sales & use tax nexus in Ohio if the seller has either gross receipts in excess of $100,000 from sales into Ohio or engages in 200 or more separate transactions in Ohio. The threshold under either test is measured during the current calendar year or the preceding taxable year. Taxpayers doing business in Ohio should review their sales data to determine if they are subject to the new nexus standards and are required to collect and remit sales tax from customers.
Pennsylvania
Beginning in the tax year 2020, the State of Pennsylvania will impose a new income tax nexus standard that is comparable to the sales & use tax economic nexus standard outlined in Wayfair. Historically, a taxpayer had income tax nexus in a state where it had a physical presence, i.e. carrying on activities beyond the solicitation of sales or having property located in the state. The Pennsylvania Department of Revenue is asserting that the physical presence is no longer required. Under the new standard, the state will impose an income tax filing obligation on remote taxpayers that are doing business and have an economic presence in the state. Economic presence under the Pennsylvania nexus standard is defined as having in excess of $500,000 of gross receipts sourced to Pennsylvania from the sale or lease of tangible personal property, sale of services or the sale or licensing of intangible property in the state. Taxpayers that have Pennsylvania sourced sales and are not filing an income tax return in the state should review their sales data to determine if they have an income tax filing obligation based on the new nexus standard for tax years beginning on or after January 1, 2020.
Click here to view an up-to-date state nexus guide.
Categories: Retail, Tax Compliance, Tax Planning
Could the U.S. Supreme Court Change the Way You Shop Online?
Jun 20, 2018
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pril 17 was not only the end of tax season but also the day the Supreme Court heard South Dakota vs. Wayfair, Inc. This case will likely affect every business, no matter size or revenue. This case spotlights the collection and remittance of sales tax, specifically whether the responsibility should lie with the state or the business. Sales tax is considered a consummation or a value-added tax and is typically assessed to the end purchaser or user of a product. Most businesses are responsible for collecting and remitting these taxes. However, with any tax law, there are exemptions.
One of these exemptions comes from a previous Supreme Court Case from 1992 – Quill v. North Dakota. In this case, the Supreme Court ruled businesses only had to collect sales tax in states where they had a physical presence. Therefore, an out-of-state business whose only contact with a state was the sale of tangible personal property, did not need to collect and remit sales tax. If the sales tax wasn’t collected by the business the burden to remit to the State was then transferred to the resident of the State. Basically, if you don’t pay sales tax on a taxable purchase, YOU are now required to pay the tax on your individual tax return. And this is where the issue lies.
States governments argue the cost to enforce collections from an individual greatly outweigh any unpaid tax. As a result, state officials are pushing for the responsibility to lie with the business. Last year, South Dakota took action with the following economic threshold law: if your business has $100,000 in gross sales or over 200 varying transactions to consumers located within the state, then your business must collect and remit tax – no exceptions.
This brings us to South Dakota vs. Wayfair, Inc.
South Dakota wants to overturn the 1992 Quill ruling arguing the development of the internet and e-commerce establishes the physical presence of a business as outlined in Quill, therefore making businesses responsible for the tax collection. In addition, state officials maintained if an online business is doing substantial trade within their borders, then bricks-and-mortar businesses are at a disadvantage as consumers may opt to purchase a product online without paying sales tax.
Conversely, Wayfair argues the complexities of such transactions are too much for smaller businesses to overcome. Under current law, 45 states and thousands of local jurisdictions assess sales tax. Additionally, each state has varying laws on what is a taxable transaction and was is not. Lastly, Wayfair has contended any internet sales are at a disadvantage due to shipping and handling charges.
All eyes are now on the Supreme Court, who is set to rule by the end of this month on the “tax case of the millenium”. Stay tuned to see how this may impact you.
Categories: Tax Compliance
Gift-giving and Taxes
May 25, 2017
The recipient of a gift need not worry about the tax consequences; receipts of gifts are non-taxable events. However, that is not always the case for the giver. Every year the IRS allows for the tax-free transfer of a specified amount of monetary gifts. For 2017 this amount stands at $14,000 per person, per year. Amounts given to any one individual, by any one individual, during a tax yearbring about no consequences as long as they are at or below $14,000. For example, a husband and wife can each give $14,000 in cash ($28,000 total) to each of their grand-kids every year, with no resulting tax or return filing consequences.
Gifts in excess of this annual exclusion can also be tax-free; however, these gifts are required to be reported against the givers lifetime gift and estate exemption. The total lifetime exemption for 2017 stands at $5.49 million per individual. Gifts made during the year in excess of the annual exclusion ($14,000) require the giver to file a gift tax return. This return discloses the excess gifts given annually as well as tracking their lifetime excess/remaining exclusion. Typically annual gift returns come with no tax due; however, these returns reduce the tax-free amount allowed upon death and could have potential tax consequences down the road.
Bottom line? If you have a large estate and make any large gifts during the year, consult your tax advisor. We may be able to offer advice on how to better structure these transactions.
– Courtney Elgin, CPA
Categories: Other Resources, Tax Compliance, Tax Planning
Home Sweet Office
May 10, 2017
Do you have a room in your home that you use just for your business? If so, you could claim a deduction on your tax return for your home office.
Before we get ahead of ourselves, we should acknowledge that you will have to meet certain requirements. However, most are able to deduct a percentage of the costs of running the home such as utilities, rent, insurance, depreciation, mortgage interest, real estate taxes, some casualty losses, repairs, and improvements as related to the portion of your home used for business.
A “home”, as defined by the IRS, can be a condo, house, apartment, mobile home or boat (with provided amenities). The home can be rented or owned, however, to qualify for the home office deduction you must meet two tax law requirements:
- You must regularly use part of your home exclusively for a trade or business.
- You must be able to show that you use your home as your principal place of business meaning you meet patients, clients, or customers at your home or you use a separate structure on your property exclusively for business purposes.
Regular use:
The IRS doesn’t offer a clear definition of regular use – only that you must use a part of your home for business on a continuing basis, not just for occasional or incidental business. You should qualify by working a couple days a week for a few hours.
Exclusive use:
Exclusive means that you must use a portion of your home only for your business. If you use a portion of your home for work but also for personal use then you will not meet that requirement. However, you are able to use a portion of a larger room as long as your personal activities do not enter that area. There are two exceptions to the exclusive use rule. If you run a qualified daycare out of your home or store inventory or product samples then you do not have to meet the exclusive use test.
If you are storing inventory or samples in your home, you can still qualify for the home business expense even if you are not using that space exclusive for your business.The inventory will need to be stored in a certain location such as the garage, a closet, or bedroom. However, you will not get the deduction if you have an office or business location outside of your home.
Remember you can only claim this deduction if you are running a business. If the IRS believes it’s a hobby the deduction will not be honored.
– Brittany Jennings, Staff Accountant
Categories: Audit & Accounting, Other Resources, Tax Compliance, Tax Planning