I am sure you have been bombarded with updates related to the COVID-19 public health emergency. I am getting multiple emails and social media updates on a daily, or even hourly basis. Below are some crisis-related hot topics that are applicable to small businesses and small business owners. If I can help you navigate this in any way, please let me know. I truly want to help small businesses during this crazy time.
The 2019 tax filing deadline has been extended automatically from April 15 to July 15. No formal extension application is needed. This extended federal deadline applies to all taxpayers automatically. States have also been coming out with guidance on this. Missouri has extended their deadline to comply with the July 15 federal extended deadline.
What does this mean?
- Balances due on your 2019 income tax returns are now not due until July 15.
- First quarter estimated tax payments for 2020 (originally due April 15) are now not due until July 15.
- Individuals can defer up to $1 million in payments. Businesses can defer up to $10 million in payments.
- You now have until July 15 to contribute 2019 funds to your Individual Retirement Account.
- Note that the 2nd quarter estimated tax payments for 2020 are still due June 15 (as of now).
- Interest and penalties on any tax payments originally due April 15 will not start calculating until the extended July 15 date.
Families First Coronavirus Response Act (HR 6201)
This act was signed into law on March 18, 2020. Part of the Families First Coronavirus Response Act (FFCRA) aims to provide relief to individuals by way of providing leave to eligible employees that have been impacted by COVID-19. Provisions of this act are set to become effective April 1 and expire December 31, 2020. Generally, employers with fewer than 500 employees will be subject to the provisions. Eligible employers must post the notice of FFCRA requirements. See sample poster at:
Below is a breakdown of some of the major points of the act. Additional guidance will be forthcoming.
Emergency Family Medical Leave Expansion – Longer Term
The existing Family Medical Leave Act (FMLA) was expanded to include the current COVID-19 pandemic. Under the expansion, paid leave is included for employees who are unable to work (or telework) due to a school or childcare closure, or if the individual is unavailable as a result of COVID-19 precautions.
To be eligible, an employee must have been employed for at least 30 days. Eligible employers shall provide paid leave for each day that the eligible employee takes after an initial period of 10 days.
Generally, the amount to be paid is the lesser of:
The total amount is capped at $10,000. This assumes an eligible employee receives the maximum $200 per day for 50 days (10 weeks).
Note that the first two weeks under FMLA may be unpaid, or the employee may elect to use paid time off. Similar to other FMLA leave events, the employer must restore the employee to their position after the leave has ended.
There may be an exemption for employers that have less than 50 employees. However, the U.S. Secretary of Labor must determine that complying with the act would jeopardize the business’ ability to continue as a going concern. Additional regulations on this will be forthcoming.
There may also be an exemption for employers that have less than 25 employees with regards to restoring the employee to their position after leave. Employers may qualify only if the position no longer exists due to the economic conditions caused by the COVID-19 emergency; the employer reasonably tries to restore the employee to a similar position with equivalent pay and benefits; or if that is not possible, the employer makes reasonable efforts in the following year to let the employee know when an equivalent position exists again.
Emergency Paid Sick Leave – Short Term
Unlike FMLA, which is for unemployment for a longer time frame, the FFCRA also added an Emergency Paid Sick Leave act. Under this act, the employer shall provide paid sick time if the employee is unable to work (or telework) due to any of the below needs to leave:
- Employee is subject to a Federal, State, or Local quarantine or isolation order
- Employee is subject to a health care directed self-quarantine
- Employee is having COVID-19 symptoms and seeking a medical diagnosis
- Employee is caring for someone with any of the above
- Employee is caring for a child whose school or childcare facility has been closed
Emergency Paid Sick Leave is to be provided for up to 2 weeks (80 hours) for full-time employees. Part-time employees are eligible for the average number of hours worked over a two-week period.
Unlike the FMLA provision, the emergency paid sick leave provision does not have an employment length requirement.
Employers cannot require employees to use other paid leave first (before paying the emergency paid sick leave). So, the employee can elect to use emergency paid leave before their regular accrued paid sick time.
The amount that shall be paid is dependent on the reason for the leave.
If the employee is caring for a child due to school or childcare facility closure, the amount to be paid is:
For all other reasons, the amount to be paid is the full regular rate of pay, up to $511 per day.
Employees who are health care workers or emergency responders are exempt.
Note that the Emergency Paid Sick Leave provision will not carry to future years, as the provision expires on December 31, 2020.
The FMLA expansion and Emergency Paid Sick Leave will result in payments to qualified individual employees that are affected. Additionally, the FFCRA includes provisions to reimburse employers for these payments.
Tax Credits for Employers
Part of the act provides for some relief for employers in the form of tax credits. While these tax credits will help reimburse payments the employer made to employees, the employers may still bear a bit of the burden. Since the payments are paid up front by the employer, they would bear the burden up front. The reimbursement will take place in the form of a credit on payroll tax forms filed at a later date. This could cause cash flow issues to businesses that are already struggling in the current economic environment.
The amounts to be claimed as a credit against payroll taxes include 100% of the qualified emergency family medical leave and emergency paid sick leave. These will be capped based on the calculation amounts mentioned in the sections above.
But what about individuals who are not employees, but self-employed?
Tax Credits for Self-Employed Individuals
To provide a similar relief for self-employed individuals, there will be a credit available against self-employment tax. These are calculated as if the individual was an employee qualifying for the leave but are claimed as a credit on the income tax return (as a reduction to self-employment tax). It is anticipated that these tax credits can be used to offset estimated tax payments.
The amount of the credit is dependent on the reason for the leave.
If the self-employed individual is caring for a child due to school or childcare facility closure, the amount to be paid is
2/3 of the average daily self-employment income of the individual for the tax year, up to $200 per day.
The average daily self-employment income is calculated as:
For all other reasons, the amount of the credit is the full average daily self-employment income, up to $511 per day.
*All of the above will be covered via payroll tax credits for employers or tax credits for self-employed individuals, as discussed in the above sections.
Employees & Employers:
COVID-19 Testing & Treatment
One other item to note under the FFCRA is in regard to COVID-19 testing and treatment. The act instructs that all health insurance plans are required to cover testing and any related health-care visits (office, urgent care, ER, or telehealth) free of charge related to COVID-19. No copays or deductibles should apply.
SBA Disaster Loans
Under SBA Disaster Loan relief, small businesses and private non-profit organizations may be eligible for up to $2 million in assistance loans.
Funds may be used to pay debts, payroll, accounts payable, and other bills. Unlike the tax credits, these are loans that must be repaid. However, the cash influx may be necessary for some small businesses to stay afloat. The interest rate on these loans is 3.75% for small businesses and 2.75% for non-profits.
Stay tuned for more relief efforts and guidance in the upcoming days (or even hours). Part II will focus on the recently passed Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was passed last week.
In closing, know my thoughts and prayers are with all of the small businesses and non-profit organizations out there. This truly is a trying and unprecedented time for all. I will continue to support local as much as I can with the restrictions, and also help you all in any way I can. If you need any assistance or guidance with any of the above, let me know.