Previously, IRS Notice 2020-23 extended the due dates for certain tax payments, filings, and other “Time-Sensitive Actions” that would ordinarily fall on or after April 1, 2020 through July 14, 2020 to July 15, 2020. See our prior blog post on Notice 2020-23 here. The IRS recently issued Notice 2020-35 to make additional Time-Sensitive Actions eligible for relief. For example, under this new guidance, an employer that receives a compliance statement issued under the voluntary correction program (VCP) component of the Employee Plans Compliance Resolution System (EPCRS) with a 150-day deadline to implement all corrective actions that ends between April 1, 2020 through July 14, 2020 has until July 15, 2020 to implement the corrections. A full list of the Time-Sensitive Actions is included in Section III.B of Notice 2020-35, which is available here.
Use Care When Implementing CARES Act Retirement Plan Distributions – State Law and Benefit Offset Concerns
As we have previously reported on our blog here and here, the CARES Act provided relief to participants in retirement plans by allowing employers to amend their retirement plans to include certain coronavirus-related distributions and to permit increased loan amounts for certain qualified individuals. Many employers have agreed to adopt these changes, and under federal law, the treatment of these distributions is clear. But there are other issues that employers and employees should consider, including: The coronavirus-related distributions could be subject to taxation under state law, even if the employee later repays the distribution to the plan; and If employees are receiving unemployment and/or disability benefits, the coronavirus-related distributions may reduce or offset these benefits. However, the enhanced loans would not be subject to taxation and may not offset unemployment and disability benefits, which may make the enhanced loan a better option for employees who anticipate paying back the distribution.… Continue Reading
Businesses that received a loan under the Paycheck Protection Program (“PPP”) are eligible for forgiveness of that loan if, among other things, the loan proceeds are used to cover “payroll costs” incurred over the eight-week period after the loan is made. Payroll costs, capped at $100,000 on an annualized basis for each employee (i.e., $15,384 over the eight-week period), are broadly defined to include, among other things: Salary, wages, commissions, or tips; Employee benefits costs, such as for vacation or paid family or medical leave (other than wages for which a credit is received under the Families First Coronavirus Response Act), group health care costs, retirement plan contributions, and severance benefits; and State and local taxes assessed on employee compensation. As of the date of this posting, no guidance has been issued by the IRS or the Department of Treasury to further clarify what specific items qualify as payroll costs.… Continue Reading
CARES Act: Additional Guidance on the Interplay Between Social Security Tax Deferrals and Forgiveness of PPP Loans
In a new set of FAQs, the IRS clarifies that an employer who receives a loan under the Paycheck Protection Program (“PPP”) may also defer payment of the employer portion of Social Security taxes due on eligible wages until the employer receives notice from its PPP lender that the loan has been forgiven. Under the CARES Act, employers of all sizes may defer payment of their portion of Social Security taxes due on wages earned between March 27, 2020 and December 31, 2020, until December 31, 2021 (50% of the deferred taxes are due) and December 31, 2022 (the remaining deferred taxes are due), subject to certain restrictions. One of those restrictions is that an employer may not defer its Social Security taxes if it has taken out a PPP loan and all or any portion of the loan is forgiven. The new FAQs clarify that, once an employer receives… Continue Reading
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) offers relief to businesses affected by COVID-19 through various programs, including forgivable loans and federal income tax credits. However, the CARES Act prevents businesses from claiming certain benefits that are considered duplicative. The following checklist outlines key considerations for businesses when selecting among the Paycheck Protection Program (the “PPP”), the Employee Retention Tax Credit, the Employer Social Security Tax Deferral, and Work Opportunity Tax Credit. Certain industries, such as aviation, have specialized relief, which is beyond the scope of this checklist. In deciding what relief is appropriate, businesses should consider, as discussed in detail below, employer size, what may be best for the business’s employees, and the business’s long-term prospects. While this checklist is designed as a tool to assist businesses in choosing the proper relief, the best way to determine which option is optimal for a particular business… Continue Reading
In a series of news releases, notices, and FAQs, the IRS has begun to issue guidance on the various employer payroll tax credits and payment deferrals enacted by the Families First Coronavirus Response Act (the “FFCRA”) and the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Links to the guidance are below, and more detailed information on the employee benefits, compensation, and employment tax provisions of the FFCRA and CARES Act can be found on our blog here. FFCRA Tax Credits: News Release: Implementation of Paid Leave and Tax Credits under the FFCRA. FAQs: COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses. Notice 2020-21: Effective Date for Employment Tax Credits under the FFCRA. CARES Act Tax Relief: News Release: Employee Retention Credit. FAQs: Employee Retention Tax Credit under the CARES Act. Notice 2020-22: Relief from Penalty for Failure to Deposit Employment Taxes. Forms… Continue Reading
The issue of whether FICA payroll taxes are due on severance payments is currently being reviewed by the U.S. Supreme Court. If the Supreme Court finds FICA taxes are not due, employers will have to file refund claims for taxes previously paid on severance payments. Unless the Supreme Court issues its opinion before April 15, 2014, an employer must file a refund claim by that date in order to preserve a refund right for any such taxes paid in 2010. (It is already too late to file refund claims for FICA taxes paid in 2009 or earlier.) For severance payments made in tax years after 2010, employers should wait for the Supreme Court’s decision before taking any action to avoid unnecessary expenses. There are specific rules for filing such a refund claim, including the need to obtain employee consent to avoid reimbursement obligations to the employee, and for filing appeals… Continue Reading
California recently enacted legislation that reduces the state’s income tax penalty for violations of Section 409A of the federal Internal Revenue Code of 1986, as amended (“Section 409A”), from 20 percent to 5 percent. The reduction is effective for taxable years beginning on or after January 1, 2013, but does not affect the state’s interest penalty tax or federal penalties related to Section 409A violations. The new law can be found here.
Procedures Announced for Employers to Correct Overpayments of Employment Taxes Related to Benefits Provided to Same-Sex Spouses
The IRS announced two special procedures for employers to correct overpayments of employment taxes made in 2013. The first procedure allows employers to use the fourth quarter 2013 Form 941, Employer’s Quarterly Federal Tax Return, to correct the overpayment of FICA and federal income tax withholdings made during the first three quarters of 2013. The second procedure allows employers to file one Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, for the fourth quarter of 2013 to correct the overpayment of FICA taxes during all quarters of 2013. For the overpayment of FICA taxes in years prior to 2013, employers may make a claim or adjustment for all four calendar quarters of a specific year by filing one Form 941-X. The employer can file a Form 941-X filed for the fourth quarter of a specific year if the year is still open under the statute of… Continue Reading
Effective January 1, 2013, employers must withhold an additional Medicare tax of 0.9% from the wages of employees who earn $200,000 or more. The IRS issued Frequently Asked Questions (FAQs) to help employers implement this new tax. The FAQs state that the employer must withhold the additional tax beginning with the pay period in which it pays wages in excess of $200,000 to an employee. The tax applies only to the wages over the $200,000 threshold. There is no requirement to notify employees once the employer begins withholding the additional tax and there is no employer contribution required with respect to the tax. The IRS plans to release revised Forms 941, 943 and the tax return schemas for the Form 94X series of returns. The IRS’ FAQs can be found here.