The federal government has taken significant steps over the past weeks to provide relief to individuals and businesses struggling to manage their finances during the COVID-19 crisis. The first of these, the Families First Coronavirus Response Act (FFCRA), went into effect on April 1.
Most notable of the provisions in FFCRA were the requirements for employers with fewer than 500 employees to provide paid sick leave and expanded FMLA leave for employees who missed work for COVID-19-related reasons.
Closely behind that came the Coronavirus Aid, Relief, and Economic Security (CARES) Act. CARES rolled out payments to individuals, tax credits to businesses, and loans through the Paycheck Protection Program (PPP) to encourage employers to retain or bring back their employees.
While the relief provided by these Acts is significant and will help countless businesses handle the uncertainties that lay ahead, they also present potential challenges for employers as they try to navigate these various programs and determine which ones are right for their business. These two Acts also interplay and overlap on employee wages in complicated ways. Businesses should review both carefully to make informed decisions about which programs or credits to participate in and understand whether that disqualifies them from other forms of relief.
The Department of Labor and the IRS have been releasing further guidance, seemingly by the day, to clarify the relationship between the FFCRA and the CARES Act. The most helpful of these thus far are:
- Department of Labor FFCRA Q&As – FAQs: Employee Retention Credit under the CARES Act and
- IRS – COVID-19 Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs
Notably, participation in one program can disqualify or limit your relief in another.
The FFCRA Employee Retention Credit Overlaps with its own Paid Sick Leave Provisions
The FFCRA provides for an Employee Retention Credit in the form of a refundable tax credit against payroll taxes for qualified wages paid to employees.
Similarly, the Paid Sick Leave provisions of the FFCRA also provide for a refundable tax credit for employers who pay sick leave to employees who miss work for COVID-19-related reasons.
IRS guidance is clear, however, that employers cannot use the same wages to qualify for both credits.
The FFCRA Employee Retention Credit Overlaps with the CARES Act’s PPP Loan and Small Business Interruption Loan
An employer who receives a CARES Act PPP Loan or a Small Business Interruption Loan may not also
- receive the FFCRA Employee Retention Credit or
- use those funds to pay sick leave to an employee and also take a credit against payroll taxes.
In other words, a business that receives a PPP Loan can still take a tax credit for qualified paid sick leave wages. However, they cannot then use those wages for the sick leave credit and count that toward the loan forgiveness offered under the PPP loan.
The FFCRA also contained a provision that allows employers to defer certain portions of their payroll taxes on wages paid between March 27, 2020 and December 31, 2020. An employer can then pay the payroll taxes they chose to defer over the following two years.
It is not yet clear whether employers who receive the Employee Retention Credit against payroll taxes or those that receive a PPP Loan can also defer their payroll taxes. The IRS needs to supply further guidance on that question.
These are just some of the many entanglements between the relief packages stemming from the COVID-19 pandemic. While many businesses are looking for relief wherever they can find it, you must educate yourself and make informed decisions about the types of relief that will work best for your business and your situation. The attorneys at Russell, Krafft, & Gruber, LLP are here to assist you in sorting out what is best for you and your business.
Aaron Zeamer is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. He practices in a variety of areas, including Business Law and Liquor License matters. Aaron works frequently with commercial real estate agents, brokers, restaurant and bar owners, breweries, distilleries, and wineries to facilitate the sale and transfer of PA liquor licenses.