Covid-19: Understanding payroll measures announced by US

The covid-19 pandemic has left businesses and individuals in a precarious situation. Many governments around the world have announced fiscal incentives to support businesses in these difficult times. The US government has recently announced a $2.2 trillion stimulus package, which is almost 11% of its gross domestic product (GDP).

Many businesses have a US footprint and therefore it’s good to take note of these support measures and evaluate if businesses could avail of these incentives to help ease their financial burden and in turn give certain benefits to employees.

Deferring payment of social security taxes

This is a benefit that has been made available to all employers regardless of the size of their operations.

The Coronavirus Aid Relief and Economic Security Act (Cares Act) will allow all employers to defer payment of the 6.2% of employer’s portion of Social Security tax payable from 27 March 2020 until 31 December 2020. Employers have been given a significantly long deferral period to pay these social security taxes.

Deferred tax amounts would be paid in equal amounts over two years and are required to be paid by the following dates:

· 50% on 31 December 2021; and

· 50% on 31 December 2022.

This is expected to provide some working capital relief to employers.

Employee retention credit for employers subject to closure due to covid-19

The credit is available to all employers regardless of size, including tax-exempt organizations. However, ‘Qualifying Employers’ must fall into one of two categories:

· The employer’s business is fully or partially suspended by government order due to covid-19 during the quarter.

· The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

These credits are calculated each calendar quarter.

How much credit can an eligible employer claim?

The amount of the credit is 50% of qualifying wages paid up to $10,000 in total. Wages paid after 12 March 2020, and before 1 January 2021, are eligible for the credit. Wages considered are not limited to cash payments, but also include a portion of the cost of employer provided health care.

Qualifying wages are based on the average number of business employees in 2019.

· Employers with less than 100 employees: If the employer had 100 or fewer employees on an average in 2019, the credit is based on wages paid to all employees, regardless if they worked or not. If the employees worked full time and were paid for full time work, the employer still receives the credit.

· Employers with more than 100 employees: If the employer had more than 100 employees on an average in 2019, then the credit is allowed only for wages paid to employees who did not work during the calendar quarter.

This is a significant benefit that US employers can avail and provides them an incentive to retain their staff during this pandemic. The only caveat is that employers who have already availed a loan under the Paycheck Protection Program (PPP) for small business owners will not be able to get the employee retention credit as well.

Paid sick leave

US employers having less than 500 employees are required to provide up to 80 hours of paid sick leave for full-time and part-time employees (at the employee’s regular rate and regardless of the employee’s duration of employment prior to leave) who need time off for any of the following reasons:

· the employee is under a Federal, State or local quarantine or isolation order related to covid-19;

· the employee has been advised by a healthcare provider to self-quarantine due to concerns related to covid-19;

· the employee is experiencing symptoms of covid-19 and seeking a medical diagnosis;

· the employee is caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to covid-19 or has been advised by a health care provider to self-quarantine due to concerns related to covid-19;

· the employee is caring for a child if the school or place of care of the child has been closed, or the childcare provider of such child is unavailable, due to covid–19 precautions;

· the employee is experiencing any other substantially similar condition as specified by the US Department of Health and Human Services.

Employees can be paid sick leave wages up to 10 days at their regular wages (limited to a maximum of $511 per day) for their own use or two-thirds their wages (limited to a maximum of $200 per day) to care for others. This works out to a maximum $5,110 per employee for sick leave and up to $2,000 per employee for family leave.

Paid leave for school closures and child care

Any individual employed by eligible US employers (having less than 500 employees) for at least 30 days (before the first day of leave) may take up to 12 weeks of job-protected leave to allow an employee, who is unable to work or telework, to care for the employee’s child (under 18 years of age) if:

· the child’s school or place of care is closed or

· the childcare provider is unavailable due to a public health emergency.

Under this incentive, the first two weeks remain unpaid, but for the next 10 weeks, eligible employees will receive two-thirds pay while on leave. The new Act limits this pay entitlement to $200 per day and $10,000 in the aggregate per employee. If an employee has any paid personal, sick, medical or sick days, they can use those paid leave days during the 14 days of unpaid leave under this incentive.

Economic stimulus payments

In addition to benefits provided to businesses, the US IRS has also endeavoured to directly put cash in the hands of individuals as well through the economic stimulus payments.

To qualify for the economic stimulus payments, the individual must:

· Be a US citizen or US resident alien

· Not be claimed as a dependent on someone else’s tax return

· Have a valid Social Security Number (SSN).

· Have an adjusted gross income below a certain amount that is based on the filing status and the number of qualifying children under the age of 17.

The stimulus payments could amount to $1,200 per individual and $500 for each qualifying child under the age of 17. Individuals with a gross income of lesser than $75,000 and Married couples with joint gross incomes of less than $150,000 are entitled to the full stimulus payment. Beyond these thresholds, the amounts are reduced gradually by $5 for every $100 in adjusted gross income above these thresholds.

Thus, the stimulus payments are income linked and meant to benefit the individuals and households in most need. High income earners may not qualify for these stimulus payments.

In summary

These are some of the measures announced by the US government to help businesses with some additional cash flow support. Small businesses have been given additional support in these times through the payroll tax credit for providing sick wages and other support to their employees who may not be able to work during this pandemic. It is important for employers and employees to evaluate whether they are eligible for these benefits and avail the same as applicable. Lower income households may also benefit from the economic stimulus payments from the US Internal Revenue Service.

Vikas Vasal is national leader tax at Grant Thornton India LLP.

Lloyd Pinto, partner at Grant Thornton India, contributed to this article.