House Passes Third COVID-19 Relief Bill with Payroll-Related Provisions
On March 27, 2020, the House passed the “Coronavirus Aid, Relief, and Economic Security Act” ( CARES Act, H.R. 748 ) by a voice vote. On March 25, 2020, the Senate passed the bill by unanimous vote. The President has indicated he will sign the bill. This third COVID-19 relief bill contains a number of payroll-related provisions.
Employee Retention Credit for Employers
Section 2301 would provide a refundable payroll tax credit for 50 percent of wages paid by eligible employers to certain employees during the COVID-19 crisis. The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.
The wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or economic hardship are eligible for the credit. For employers with 100 or fewer full-time employees, all employee wages are eligible, regardless of whether an employee is furloughed. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in wages and compensation paid by the employer to an eligible employee. Wages do not include those taken into account for purposes of the payroll credits for required paid sick leave or required paid family leave, nor for wages taken into account for the employer credit for paid family and medical leave.
The bill would grant the Secretary of the Treasury authority to advance payments to eligible employers and to waive applicable penalties for employers who do not deposit applicable payroll taxes in anticipation of receiving the credit.
If an employer is receiving Small Business Interruption Loans (Section 1102), it is not eligible for the credit. The credit is provided through Dec. 31, 2020.
Delay of Payment of Employer Payroll Taxes
Section 2302 would allow taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments – one at the end of 2021 and the other at the end of 2022. Deferral is not provided to employers that avail themselves of Small Business Administration loans designated for payroll.
Payroll taxes that can be deferred include the employer portion of FICA (Social Security and Medicare) taxes, the employer and employee representative portion of Railroad Retirement Tax Act (RRTA) taxes that are attributable to the employer FICA rate and half of the Self Insured Contributions Act (SECA) tax liability (see Payroll Guide ¶4080).
These provisions would apply to the period beginning on the date of enactment.
Paycheck Protection Program
Section 1102 would create a paycheck protection program for small employers, self-employed individuals, and “gig economy” workers to help prevent workers from losing their jobs and small businesses from going under due to economic losses caused by the COVID-19. The program would provide eight weeks of cash-flow assistance through 100% federally guaranteed loans to small employers who maintain their payroll during the emergency.
If the employer maintains payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven, which would help workers to remain employed and affected small businesses and our economy to recover quickly from this crisis. This proposal would be retroactive to Feb. 15, 2020, to help bring workers who may have already been laid off back onto payrolls.
Unemployment Insurance Assistance
Waiting week. Section 2105 would allow states to enter into an agreement with the federal government to receive full reimbursement for the total amount of unemployment compensation paid to individuals for their first week of unemployment, provided that the state does not have a waiting week between applying for and receiving benefits, effective until Dec. 31, 2020.
Section 2112 would eliminate the waiting week between applying for and receiving Railroad Unemployment Insurance benefits through Dec. 31, 2020.
Short-term compensation. Section 2108 would provide 100% federal reimbursement to states for payments made under qualifying short-time compensation programs (also known as work sharing programs) through Dec. 31, 2020. Work sharing programs allow employers to temporarily reduce the hours of their employees instead of laying them off during economic downturns (see Payroll Guide ¶11,035).
For states without formal short-time compensation laws, Section 2109 would allow them to enter into agreements with the U.S. Department of Labor (DOL) to enact a short-time compensation plan and receive a 50% federal reimbursement for payments through Dec. 31, 2020.
Emergency unemployment compensation increase. Section 2104 would add an additional $600 in Federal Pandemic Unemployment Compensation to every weekly unemployment benefit, effective until July 31, 2020. The $600 benefit will be taxable (like regular unemployment benefits), but it will be disregarded in determining Medicaid or CHIP eligibility.
Health Savings Accounts
Section 3702 would ensure individuals are able to use all tax-favored health care accounts, like Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs), to buy over-the-counter medicines tax-free without a prescription. This change would apply for amounts paid or expenses incurred after Dec. 31, 2019. In addition, Sections 3703 and 3704 explain that high deductible health care plans with HSAs will be able to provide coverage pre-deductible for telehealth services.
Student Loan Repayment Benefits
Section 2206 would allow employers that provide student loan repayment benefits to employees to do so on a tax free basis and will be excluded from the employee’s income.This benefit will take effect after the date of enactment of this legislation through Dec. 31, 2020. The annual $5250 benefit cap includes educational assistance such as tuition, fees and books (see Payroll Guide ¶3550).