The IRS offers three new tax credits for COVID-19 related issues.

  1. Employee Retention Credit

The Employee Retention Credit is intended to help businesses keep employees on payroll. The tax credit is 50% of up to $10,000 in wages paid by an eligible employer with a business financially impacted by COVID-19. The tax credit is refundable.

Employers of any size may be eligible, excluding state and local governments and small businesses with SBA loans. Employers must meet one of the following requirements: (a) have a business fully or partially suspended by government order due to COVID-19 during the calendar quarter or (b) have gross receipts below 50% of the comparable quarter in 2019. Once gross receipts go above 80% of a comparable quarter in 2019, the employer is no longer eligible for the credit.

  1. Paid Sick Leave Credit

The Paid Sick Leave Credit is intended to give businesses a tax credit for an employee who is unable to work because of COVID-19 quarantine or self-quarantine or has COVID-19 symptoms and is seeking a medical diagnosis. Employers must pay these employees for sick leave of up to 10 days (80 hours) at the employee’s regular rate of pay up to $511 per day ($5,110 total). Sick leave is also available for employees unable to work due to caring for someone with COVID-19. Employers must pay these individuals for up to two weeks (80 hours) at 2/3 the employee’s regular rate of pay or up to $200 per day and $2,000 in total.

Employers can be reimbursed for the credit by reducing required deposits of payroll taxes that have been withheld from wages by the amount of the credit. The eligible period is April 1, 2020 through December 31, 2020.

  1. Family Leave Credit

The Family Leave Credit is intended to give businesses a tax credit for an employee who needs leave to take care of him/herself or a family member. Employees are entitled to paid family and medical leave equal to 2/3 of the employee’s regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave may be counted toward the family leave credit.

Employers can be reimbursed for the credit by reducing required deposits of payroll taxes that have been withheld from wages by the amount of the credit. The eligible period is April 1, 2020 through December 31, 2020.

Receiving the Credit

Employers may reduce required payroll tax deposits by the amount of the credit. Total qualified wages and related health insurance costs for each quarter are reported on quarterly employment tax returns of Form 941 beginning with the second quarter. If tax deposits are not enough to cover the credit, the employer may request an advance payment from the IRS by submitting IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.