IRS Releases Guidance on Coronavirus-Related Payroll Tax Credits

On March 31, the IRS released multiple pieces of guidance regarding provisions of the Families First Coronavirus Response Act (“FFCRA”) and the Coronavirus, Aid, Relief, and Economic Stability (“CARES”) Act.  The FFCRA includes two employer social security tax credits for employers of 500 or fewer employees equal to the amount of paid leave that the employer is required to provide to employees related to the COVID-19 pandemic.  (See earlier coverage.)  The CARES Act provides a credit against employer social security tax equal to 50% of qualified wages paid to employees after March 12, 2020, and before December 31, 2020.

On March 20, the IRS issued a news release providing details of how the FFCRA credits will be administered.  (See earlier coverage.)   On March 31, the IRS released IR 2020-62 providing guidance on the availability of the employee retention credit in the CARES Act, Notice 2020-22 providing relief from late deposit penalties for employment tax deposits reduced in anticipation of one of the employer social security tax credits, and new IRS Form 7200 (and form instructions) for claiming a refund of excess social security tax credits.  Below, we discuss the employee retention credit and the guidance released yesterday. Continue Reading

CARES Act Enacted; Employers May Defer Some Payroll Tax Deposits Due on Monday

UPDATE: President Trump signed the bill into law on Friday afternoon.

Earlier this afternoon, the House passed by voice vote the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the third Coronavirus-related piece of legislation, which was passed by the Senate on Wednesday with a 96-0 vote.  At $2 trillion, the CARES Act is the largest stimulus package in U.S. history and is headed to the White House for President Trump’s signature later today.

In our previous article, we provided a Client Alert summarizing the tax-related provisions in the CARES Act.  Our next two articles will highlight two provisions available to qualifying employers as they navigate this challenging time.  Today, we focus on Section 2302, which permits employers to defer deposits of the employer share of social security taxes. Given that it is a near certainty that the President will sign the Act before Monday, employers may seek to cancel payroll tax deposits initiated for wages paid today and initiate a same-day wire transfer deposit on Monday of the payroll deposits less employer social security tax. The deferral provision applies only to the employer’s share of social security tax.  It does not apply to the employer’s Medicare taxes nor to the employee’s share of social security or Medicare taxes. Continue Reading

Senate-Passed COVID-19 Legislation Includes Payroll Tax Provisions

Late Wednesday night, the Senate passed (96-0) the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the third Coronavirus-related piece of legislation. Early Wednesday, the Senate announced that an agreement had been reached among Senate Republicans, Senate Democrats, and the Trump Administration on the package, but late concerns from a quartet of Republican senators stalled the package momentarily before a deal was reach Wednesday evening.  The bill includes a number of tax-related provisions including a significant deferral of payroll tax deposits and a credit against employer social security tax for certain employers affected by the COVID-19 outbreak.   This Client Alert provides a summary of all of the tax-related provisions in the legislation.

The House is expected to consider the bill on Friday.

IRS Offers Informal Guidance on New Paid Leave Tax Credits; More to Come Next Week

Earlier this evening, the IRS offered informal guidance in IR-2020-57 regarding its administration of the payroll tax credits enacted as part of the Families First Coronavirus Response Act (the “Act”) earlier this week.  The Act mandates two forms of paid leave for employees of employers of 500 or fewer employees.  Employers of more than 500 employees are neither subject to the Act’s paid leave requirements or eligible for the payroll tax credits provided under the bill.

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COVID-19 Emergency Declaration: Notice 2020-17 Suggests Code § 139 is Available to Provide Tax-Free Payments for Certain Expenses

In an earlier alert, we expressed concern about the applicability of Section 139.  Our concern was based on the fact that the President’s declaration of an emergency on March 13, 2020, with respect to the COVID-19 pandemic was under Section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the “Stafford Act”) pertaining to national emergencies, rather than Section 401 pertaining to disasters.  Our alert called on the IRS to issue guidance immediately confirming the application of Section 139, which would permit employers to offer “qualified disaster relief payments” to employees as a means of mitigating the expenses associated with the pandemic’s effects.  Based on communications with the IRS, we understand the IRS is considering that request.  We now believe, based on recent IRS guidance, that it would be reasonable for employers to take the position that Section 139 is available to employers, but  IRS guidance is still needed to make this clear and to provide further clarity on the types of expenses for which it may be used given the unique circumstances of the present emergency.

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Paid Leave Measure Enacted in Response to COVID-19 Outbreak

UPDATE: President Trump signed the bill into law this evening.

This afternoon, the Senate voted 90-8 to approve the House-backed Families First Coronavirus Response Act.  The legislation will provide up to ten weeks of paid FMLA leave and two weeks of paid sick leave to certain employees affected by COVID-19.  Details on the legislation, which largely applies to employers of 500 or fewer employees, are available in our earlier article detailing the House measure.  The Senate voted down amendments to the bill that would have expanded the bill’s paid FMLA provisions or replaced the paid leave with state unemployment benefits.  The measure now heads to President Trump, who is expected to sign the bill into law.

House-Passed Coronavirus Relief Bill Leaves Many with More Questions than Answers

This weekend, the House of Representatives passed the Families First Coronavirus Response Act, a relief bill negotiated with the agencies and supported by the President.  On Monday night, the House of Representatives substantively modified that bill in a follow-on resolution, H. Res. 904, referred to as technical corrections.  Despite the changes, concerns have been expressed about potential gaps in the proposed legislation.  Nonetheless, it is probable that legislation providing relief to at least some affected employees and employers will pass at some point in the not too distant future.

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COVID-19 Emergency Declaration: Code § 139 Uncertain; Leave-Sharing Policies Permitted

UPDATE: We have provided an updated analysis of the issues surrounding the availability of Section 139.  Our original post is below.

On March 13, 2020, the President declared the COVID-19 pandemic to be an emergency under Section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the “Stafford Act”).  The decision to declare an emergency is addressed in a letter from the President to Administration officials in which he explained that his decision to issue an emergency declaration was “based on the fact that our entire country is now facing a significant public health emergency.” Continue Reading

New Treasury Regulations Ease Payroll Administration Related to Employer-Provided Vehicles

For decades, employers and employees have been effectively precluded from using two of the handiest special valuation rules—the fleet-average and vehicle cents-per-mile valuation rules—to value employees’ personal use of employer-provided vehicles.  The 1989 fringe benefit regulations imposed modest maximum vehicle values ($16,500 and $12,800, respectively, as adjusted for inflation) to limit the use of the rules, which have not kept pace with rising vehicle costs.

When the 2017 Tax Cuts and Jobs Act (“TCJA”) increased the dollar limitations on the depreciation deductions for luxury automobiles under section 280F(a), the permitted maximum value of a vehicle, when using either special valuation rule, increased to $50,000, which is adjusted for inflation beginning with calendar year 2019.  On February 5, 2020, Treasury published final regulations amending Treasury Regulation § 1.61-21 to align the increased limitations on the maximum vehicle fair market values with the TCJA changes.  Consistent with earlier guidance in proposed regulations, Notice 2019-08, and Notice 2019-34, the final regulations also provide transition rules for employers who desire to retroactively use either special value rule for 2018 or 2019, if the vehicle would have met the increased maximum value requirement in the year the vehicle was first made available to any employee of the employer. Continue Reading

IRS Releases Proposed Regulations on the Mechanics of Income Tax Withholding

Today, the IRS published proposed regulations addressing changes made by the Tax Cuts and Jobs Act of 2017 (the “TCJA”) to how an employee instructs an employer to withhold income taxes on his or her Form W-4 (Employee’s Withholding Certificate). The Form W-4 was redesigned for 2020 to reflect the TCJA changes to how income tax withholding from wages must be calculated.

The proposed regulations update existing regulations under section 3402 to reflect TCJA’s shift from relying on “withholding exemptions” to determine an employee’s income tax withholdings to the more complicated “withholding allowance” methodology that is putatively designed to neutralize the impact of other changes, such as the elimination of certain Schedule A adjustments to gross income for employees. Before settling on a final Form W-4 implementing these changes, the IRS received feedback on multiple draft form revisions that criticized the form as being complex and confusing. In addition, concerns were raised about the amount of personal information regarding an employee’s other jobs and earnings required to complete early drafts of the form. The 2020 Form W-4 addressed some of these criticisms, but still remains more complicated than the earlier form. Time will tell whether employees are able to easily adapt to the new form, or if errors in completing the form could result in employee underwithholding.

Select portions of the proposed regulations are discussed below. We will continue to update our readers on significant developments as the regulations are finalized. We discuss other effects of the TCJA elsewhere on our blog. Continue Reading

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