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Employer Credit for Paid Sick Leave

Dear Clients of SKJ & Company, P.S.:

We understand many employees of our clients’ business are unable to work and receive wages due to current COVID-19 crisis.

In order to support the employees and business owners financially, the IRS has announced two types of tax credits.

The following credits are applicable to paid sick leave between 4/2/2020 and 12/31/2020.

  • Paid Sick Leave Credit: Applies to employees who are under isolation order due to COVID-19.

    • The credit is 100% of paid sick leave wages paid to the subject employee.

    • Maximum credit is $511 per day, up to 80 hours (10 days).

  • Child Care Leave Credit: For those who provides care to family under isolation due to COVID-19, and/or children at home.

    • The credit is 2/3 of sick leave wages paid to the subject employee.

    • Maximum credit is $200 per day, up to 80 hours (10 days).

    • However, businesses with 50 employees or less are exempt from this leave requirements if the leave impacts the businesses’ ability to continue as a going concern.

The tax credit applies to following businesses.

  • Businesses closed due to the Stay-At-Home Order issued by Washington State Governor yesterday (3/23/2020).

  • Businesses are still open under the Stay-At-Home Order exception but the employees are unable to work due to following reasons:

    • Employees unable to work for being isolated due to COVID-19.

    • Employees providing care to children due to school or child care facilities closures.

    • Employees providing care to family who are under isolation due to COVID-19.

    • If the employees are laid off and not paid due to decrease in sales, the tax credit does not apply. Instead, he/she must apply for unemployment benefit.

How the tax credit is paid

  • The business will be exempt from the existing payroll tax liabilities up to the amount of paid sick leave wages paid.

  • If the credit is not enough to cover the wage, the employer may request for advances.

    • IRS has not yet published the forms to request for the advances. It is announced to be released next week.

Sole Proprietors (Self-Employment) who files Schedule C

  • The tax credit applies to self-employment taxpayers that does not pay wages.

  • Same rules apply. However, the tax credit will be credited towards your 2020 income tax liabilities.

  • We will provide further details once more information is received from the IRS next week.

(Important!!) When paying paid leave wages on 4/2/2020 and after, please be aware of the following:

  • If your business is closed, please still send us the payroll hours as usual.

    • All hours / wages should be paid leave hours.

  • If your business is still operating, please separate the actual hours worked and sick leave hours.

    • For salaried employees, please note the days paid under sick leave.

For any questions, please contact our office.

Thank you,

SKJ & Company, P.S.

Seke Jung, CPA