Clarity on 2020 Employer Tax Credits

Employer Tax Credits for 2020

It has been a difficult time for many businesses during the COVID-19 pandemic.  Congress has provided some relief to certain employers by enacting three tax credits in separate pieces of legislation. 

1. Family and Medical Leave Credit

The Family and Medical Leave Credit was initially created by the Tax Cuts and Jobs Act (TCJA) to be effective for the 2018 and 2019 tax years.  This credit was expanded through the 2020 tax year by the Taxpayer Certainty and Disaster Relief Act.

Employers who have a written policy in place meeting certain requirements can receive a general business credit based on wages paid to employees on family and medical leave.  The credit can range anywhere from 12.5% to 25% of an employee’s wages. The credit is only available for those employees that received no more than $72,000 in wages in the previous year and have been with the organization for at least one year.

The IRS has compiled an extensive list of reasons an employee can be extended for purposes of the credit at IRS.gov.

2. COVID-19 Credit

The COVID-19 Credit was passed as part of the Families First Coronavirus Response Act.  The credit covers certain costs of required paid sick leaves and expanded family and medical leaves related to COVID-19. 

The credit is available for wages paid from April 1st through the end of 2020 for qualified employers.  Employers with fewer than 500 employees must provide emergency paid sick leave up to $511 per day for up to 10 days, for a total potential credit of $5,110.  Note that an eligible employee must have been in COVID-19 quarantine, caring for an individual in quarantine, or be in quarantine waiting for a diagnosis.

It is important to note that you cannot “double dip”.  Employers are not able to claim the COVID-19 credit if they are taking advantage of the Family and Medical Leave Credit for the same amounts.

3. Employee Retention Credit (ERC)

The Employee Retention Credit was part of the Coronavirus Aid, Relief and Economic Security (CARES) Act that was passed in March.  The ERC is a refundable payroll tax credit which offsets Social Security.  The ERC is equal to 50% of the first $10,000 of qualified wages an employer pays to employees after March 12 and before January 1, 2021.

To be eligible for the ERS your organization must have partially or fully suspended operations during the applicable quarter due to government orders related to COVID-19 or if the organization experienced a significant decline in gross receipts (50% or less than the same quarter in 2019).  Eligible companies can immediately benefit by reducing current payroll tax deposits.

Tough Year

If you're confused about the tax credits currently available to employers, you're not alone. It's been a tough year for everyone, but your DWD professional advisors can help clear up confusion about 2020 business taxes. Contact us today!

Contributed By: Doug Murphy, CPA | DWD CPAs & Advisors