On Friday, the Internal Revenue Service and the DOL made announcements on how employers will be able to recover for monies paid to employees for sick leave. Additionally, the DOL also stated it would not bring an enforcement action against employers for any violations within the first 30 days the law is in effect so long as the employer is acting in good faith to comply.
IRS Guidance on Reimbursement of Paid Leave Provided by Employers
In Friday’s announcement, the IRS provide important guidance to employers that they would be able to recoup sick leave payments immediately by keeping a portion of their deposit as part of their employees’ federal, social security and Medicare taxes.
Below are the IRS explanations on how business will recoup this money immediately:
When employers pay their employees, they are required to withhold from their employees’ paychecks federal income taxes and the employees’ share of Social Security and Medicare taxes. The employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns with the IRS.
Under guidance that will be released next week, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.
The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.
If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less.The details of this new, expedited procedure will be announced next week.
In its announcement, the IRS gave the following examples:
If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.
If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.
If you have any additional questions please feel free to reach out to the Paterra Law and we will assist you in understanding this new law. If you should have tax questions we have a number of tax professional we are working with that will be happy to help you address these specific tax questions.
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