On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) became law. We have already provided a summary of the provisions of the CARES Act relating to expanded small business loan opportunities. In this alert, we will summarize some key business tax relief and the relaxation of some qualified retirement plan rules to provide employees access to additional sources of funds during 2020.

Summary of CARES Act Business Tax Relief

The CARES Act provides a number of temporary changes which may provide immediate and long-term cash relief to businesses, including:

The Internal Revenue Service has released initial guidance explaining the process for small and mid-size businesses to obtain tax credits for required COVID-19 related paid leave. The guidance includes what information you should receive from an employee in order to substantiate eligibility for the FFCRA tax credits. The guidance specifies that employers should receive a written request for the COVID-19 related paid leave from the employee that contains, among other things, a “statement of the COVID-19 related reason the employee is requesting leave and written support for such reason.” However, no description of what constitutes “written support” is given. It is unclear whether employers can permissibly ask for doctors or other potentially protected information. We recommend that any employee certification forms state that “additional documentation may be required” so that employers can seek further information from employees if new guidance indicates that more written support is required.

The payroll tax credit for qualified paid sick leave and FMLA is allowed against the taxes imposed on employers by section 3111(a) of the Internal Revenue Code (the “Code”) (the Old-Age, Survivors and Disability Insurance tax (social security tax)) and section 3221(a) of the Code (the Railroad Retirement Tax Act Tier 1 rate) on all wages and compensation paid to all employees. If the amount of the credit exceeds the employer portion of these federal employment taxes, then the excess is treated as an overpayment and refunded to the employer under sections 6402(a) or 6413(a) of the Code. The qualified sick leave wages and qualified family leave wages are not subject to the taxes imposed on employers by sections 3111(a) and 3221(a) of the Code and employers (other than those that are subject to the Railroad Retirement Tax Act) are entitled to an additional credit for the taxes on employers imposed by section 3111(b) of the Code (Hospital Insurance (Medicare tax)) on such wages.

Eligible employers that pay qualified leave wages will be able to retain an amount of all federal employment taxes equal to the amount of the qualified leave wages paid, plus the allocable qualified health plan expenses and the amount of the employer’s share of Medicare tax imposed on those wages, rather than depositing them with the IRS. The federal employment taxes that are available for retention by eligible employers include federal income taxes withheld from employees, the employees’ share of social security and Medicare taxes and the employer’s share of social security and Medicare taxes with respect to all employees.

If the federal employment taxes yet to be deposited are not sufficient to cover the eligible employer’s cost of qualified leave wages, plus the allocable qualified health plan expenses and the amount of the employer’s share of Medicare tax imposed on those wages, the employer will be able file a request for an advance payment from the IRS on a Form 7200. The IRS expects to begin processing these requests in April 2020.

Employers claiming the credits for qualified leave wages, plus allocable qualified health plan expenses and the eligible employer’s share of Medicare taxes, must retain records and documentation related to and supporting each employee’s leave to substantiate the claim for the credits, as well as retaining the Forms 941, Employer’s Quarterly Federal Tax Return, and 7200, Advance of Employer Credits Due To COVID-19 and any other applicable filings made to the IRS requesting the credit. We recommend that employers retain the following information for each employee taking qualified paid leave to ease the tax credit process:

We further recommend that businesses evaluate their eligibility for the business tax relief under the CARES Act, and reach out to their external payroll providers to provide the information required to process any payroll tax credits which they may be eligible to receive if they are not seeking a Payment Protection Program Loan. 

Temporary Permitted Relief from Retirement Plan Accounts 

The CARES Act provides individuals with the ability to use funds from retirement savings to aid them financially during the coronavirus response.

We advise employers to talk to their plan administration providers about the administration of existing participant loans, new loans under the temporary changes from the CARES Act, coronavirus related distributions and any planned communications to participants about the how the CARES Act impacts them. 

If you have any questions related to the Families First Coronavirus Response Act, the joint guidance or any other issues arising from the current COVID-19 emergency, please contact Amalie Tuffin at atuffin@hutchlaw.com or Ashley Pittman at apittman@hutchlaw.com.

Look for more Client Alerts from us as circumstances warrant.

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This Alert is provided for informational purposes only and is not intended to be, nor should it be construed as, legal advice on any specific matter, nor does it represent any undertaking to keep recipients advised of all relevant legal developments. This Alert does not create or constitute an invitation to create an attorney-client relationship, nor should it be construed as an advertisement or solicitation for legal services. This material may be considered Attorney Advertising in some states. Prior results do not guarantee a similar outcome. 

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