On Wednesday, the IRS released extensive new guidance in the form of frequently asked questions (“FAQs”) on the IRS website addressing various aspects of the employee retention credit.  This is the third in a series of articles addressing various aspects of these FAQs.  This article addresses the determination of qualified wages and allocable qualified health plan expenses.  Our first article discussed the IRS’s interpretation of the aggregation rules under section 2301(d) of the CARES Act and the determination of employer eligibility based on a full or partial suspension of operations due to a government order.  Our second article focused on employer eligibility for the credit based on a significant decline in gross receipts.  Subsequent articles will address issues related to the income and deduction treatment of qualified wages for employees and employers and issues related to the use of third-party payers.  Before the release of the IRS FAQs, we addressed how employers can claim the employee retention credit and its interaction with the deferral of employer social security tax deposits (see earlier article).

Although employers should carefully consider the FAQs, they should be mindful that these FAQs are not binding guidance but instead represent the current thinking of the IRS on the employee retention credit.

Continue Reading IRS Employee Retention Credit FAQs Provide Guidance on Calculation of Qualified Wages and Qualified Health Plan Expenses

The IRS recently updated its FAQs discussing the two COVID-19-related payroll tax credits under the Families First Coronavirus Response Act (“FFCRA”) to confirm the availability of section 139 disaster relief programs to respond to employee needs during the COVID-19 pandemic.  However, the FAQ also serves to remind employers of the scope of Section 139:

58.  Are qualified sick leave wages and qualified family leave wages excluded from gross income as “qualified disaster relief payments”?

No.  Section 139 of the Internal Revenue Code (Code) excludes from a taxpayer’s gross income certain payments to individuals to reimburse or pay for expenses related to a qualified disaster (“qualified disaster relief payments”).  Although the COVID-19 outbreak is a “qualified disaster” for purposes of section 139 the Code (see below), qualified leave wages are not excludible qualified disaster relief payments, because qualified leave wages are intended to replace wages or compensation that an individual would otherwise earn, rather than to serve as payments to offset any particular expenses that an individual would incur due to COVID-19.

Continue Reading IRS Reiterates Scope of Section 139 Disaster Relief Payments in FAQ

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) authorizes the Treasury Department to provide payments to passenger air carriers, cargo air carriers, and certain contractors that must be exclusively used for the continuation of payment of employee wages, salaries, and benefits.  The Payroll Support to Air Carriers and Contractors Program provides a total of up to $32 billion in payroll support to avoid layoffs and furloughs in the airline industry, which has been hard hit by the COVID-19 pandemic. The CARES Act authorizes up to $25 billion in payroll support for passenger air carriers; other air carriers and certain contractors may receive up to $4 billion and $3 billion in payroll support, respectively.  Section 4117 of the CARES Act provides that the Treasury Department may receive warrants, options, preferred stock, debt securities, notes, or other financial instruments issued by a company receiving payroll support payments to provide appropriate compensation to the Federal Government for the provision of the financial assistance.  Treasury has released a form to memorialize the terms and conditions of the Payroll Support Program Agreement.
Continue Reading IRS Releases FAQs on Federal Tax Consequences of Payroll Support for Air Carriers and Contractors under CARES Act

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 IRS Releases Guidance on Coronavirus-Related Payroll Tax Credits

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

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.

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

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.

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

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.

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

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