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Non-Profit Update on H.R. 6201

Some non-profit employers may receive payroll tax relief from the Families First Coronavirus Response Act signed into law on March 18, 2020.

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Some non-profit employers may receive payroll tax relief from the Families First Coronavirus Response Act signed into law on March 18, 2020.

Some non-profit employers may receive payroll tax relief from the Families First Coronavirus Response Act signed into law on March 18, 2020.

The Act provides credits for 100% of “qualified sick leave wages” and “qualified family leave wages” paid by employers with respect to the calendar quarter. It covers employers with fewer than 500 employees that pay qualified sick leave wages or qualified family leave wages.

Qualified sick leave wages

“Qualified sick leave wages” means wages and compensation paid by an employer that are required to be paid by reason of the Emergency Paid Sick Leave Act, which includes prorated amounts for part-time workers.

The credit is applied against the employer’s social security and payroll taxes. It’s the amount of qualified sick leave wages paid for up to 10 days for each employee.

There are different thresholds of wages eligible for credits depending on the purpose of the qualified sick leave wages. If the qualified sick leave wages are paid to an employee caring for someone who has been quarantined or an employee caring for his or her child whose school or childcare business has closed, or whose childcare provider is unavailable because of COVID-19 precautions, the qualified sick leave wages taken into consideration for that employee will be up to $200 per day. This would be a maximum total available credit for the employer up to $2,000 per employee.

If the qualified sick leave wages are paid to an employee subject to a federal, state or local quarantine or isolation order; an employee whose health care professional has advised them to self-quarantine; or an employee who is experiencing symptoms of COVID-19 and is seeking a medical diagnosis; the amount will be up to $511 per day for the individual. This would be a maximum total available credit of $5,110 per employee.

An employer may not require an employee to use other paid leave provided by the employer, such as vacation, personal and sick days, before the employee uses the qualified sick leave wages. Part-time employees and employees of organizations that don’t already have paid sick leave policies will likely benefit while the cost to the employer should be offset by the credit.

The Department of Labor has the authority to issue regulations for good cause to exempt a small business with fewer than 50 employees from the requirement to pay qualified sick leave wages when the imposition would jeopardize the viability of the business as a going concern.

Qualified family leave wages

The Families First Coronavirus Response Act also includes a section called the Emergency Medical Leave Expansion Act, which provides a requirement for employers with fewer than 500 employees to provide “qualified family leave wages” to employees with “qualifying need related to a public health emergency.” “Qualified family leave wages” means wages to an employee who is unable to work (or telework) due to the need to care for his or her child under 18 years old if the school or place of care has been closed, —or the child care provider of the child is unavailable—due to a public health emergency. Eligible employees are those who have been employed for at least 30 days.

The first 10 days may be unpaid sick leave. Then the qualified family leave wages required to be paid must be not less than two-thirds of normal pay up to $200 per day, for 10 weeks and $10,000 in the aggregate.

Additional information

If your organization has unrelated business income, it can’t deduct the wages related to that activity if your non-profit also receives a credit for those wages because there can be no double deduction.

Employers can claim these as credits against payroll taxes. The IRS has indicated in Information Release 2020-57 on March 20th there will be an “expedited advance from the IRS by submitting a streamlined claim form that will be released” soon (see IR 2020-57). The tax credits are refundable, which means that employers are expected to receive cash refunds if the amounts are more than the payroll tax liabilities. On March 30th the IRS released a draft of Form 7200 – Advance Payment of Employer Credits Due to COVID-19 – on which employers can request advance payments of the credits.

The credits are available for qualified sick leave wages and qualified family leave wages paid through December 31, 2020.

The Act provides that the Secretary of the Treasury will issue regulations or other guidance, which we will share with you as it develops.

COVID-19 Business Resources

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

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