The IRS released Form 941 instructions and instructions to Schedule B for the second, third and fourth quarters of 2020 in late June. Several issues have now arisen with the deferral of the employer’s 6.2% share of Social Security taxes.

Designating Deferrals

Although employers can’t defer a deposit of Social Security taxes they’ve already made, employers may be able to claw back some of the deferral from taxes already deposited by designating those funds as employees’ withheld income and FICA taxes and the employer’s portion of Medicare taxes.

Why:The Form 941 instructions state that regardless of how deposits are identified for EFTPS purposes, employers can consider prior deposits during a quarter as first being deposited for employment taxes other than the employer’s share of Social Security taxes.

The IRS used strikingly similar language to define “federal employment taxes” in its FAQs on claiming pandemic-related tax credits. There, the IRS defined the phrase as including employees’ withheld income and FICA taxes and your portion of Medicare taxes.

Makeup Deposits

Employers must repay half the deferral by Dec. 31, 2021, and the other half by Dec. 31, 2022. According to the IRS, payments made before Dec. 31, 2021, are first applied against payments due on Dec. 31, 2021, and then applied against the payment due on Dec. 31, 2022.

Upshot:If the deferral is more than the deposit, the makeup deposit may not be split evenly; the lion’s share may need to be paid by Dec. 31, 2022.

Flip side: If the deferral is less than the deposit, nothing would be due Dec. 31, 2021, and everything would be due Dec. 31, 2022.

Corporate Deductions

If employers choose to defer their deposits of Social Security taxes, corporate deductions for those taxes are also deferred.
This is courtesy of the Payroll Legal Alert found in the APA website

8/8/2020 Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster
MEMORANDUM FOR THE SECRETARY OF THE TREASURY
SUBJECT: Deferring Payroll Tax Obligations in Light
of the Ongoing COVID-19 Disaster
By the authority vested in me as President by the Constitution and the laws of the United States of
America, it is hereby ordered as follows:
Section 1. Policy. The 2019 novel coronavirus (COVID-19) that originated in the People’s Republic
of China has caused significant, sudden, and unexpected disruptions to the American economy. On
March 13, 2020, I determined that the COVID-19 pandemic is of suicient severity and magnitude to
warrant an emergency declaration under section 501(b) of the Robert T. Staord Disaster Relief and
Emergency Assistance Act, 42 U.S.C. 5121-5207, and that is still the case today. American workers
have been particularly hard hit by this ongoing disaster. While the Department of the Treasury has
already undertaken historic eorts to alleviate the hardships of our citizens, it is clear that further
temporary relief is necessary to support working Americans during these challenging times. To
that end, today I am directing the Secretary of the Treasury to use his authority to defer certain
payroll tax obligations with respect to the American workers most in need. This modest, targeted
action will put money directly in the pockets of American workers and generate additional
incentives for work and employment, right when the money is needed most.
PRESIDENTIAL MEMORANDA
Memorandum on Deferring Payroll Tax Obligations
in Light of the Ongoing COVID-19 Disaster
BUDGET & SPENDING
Issued on: August 8, 2020
★ ★ ★8/8/2020 Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster | The White House
https://www.whitehouse.gov/presidential-actions/memorandum-deferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/ 2/3
Sec. 2. Deferring Certain Payroll Tax Obligations. The Secretary of the Treasury is hereby directed
to use his authority pursuant to 26 U.S.C. 7508A to defer the withholding, deposit, and payment of
the tax imposed by 26 U.S.C. 3101(a), and so much of the tax imposed by 26 U.S.C. 3201 as is
attributable to the rate in eect under 26 U.S.C. 3101(a), on wages or compensation, as applicable,
paid during the period of September 1, 2020, through December 31, 2020, subject to the following
conditions:
(a) The deferral shall be made available with respect to any employee the amount of whose wages
or compensation, as applicable, payable during any bi-weekly pay period generally is less than
$4,000, calculated on a pre-tax basis, or the equivalent amount with respect to other pay periods.
(b) Amounts deferred pursuant to the implementation of this memorandum shall be deferred
without any penalties, interest, additional amount, or addition to the tax.
Sec. 3. Authorizing Guidance. The Secretary of the Treasury shall issue guidance to implement this
memorandum.
Sec. 4. Tax Forgiveness. The Secretary of the Treasury shall explore avenues, including legislation,
to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this
memorandum.
Sec. 5. General Provisions. (a) Nothing in this memorandum shall be construed to impair or
otherwise aect:
(i) the authority granted by law to an executive department or agency, or the head thereof; or
(ii) the functions of the Director of the Oice of Management and Budget relating to budgetary,
administrative, or legislative proposals.
(b) This memorandum shall be implemented consistent with applicable law and subject to the
availability of appropriations.
(c) This memorandum is not intended to, and does not, create any right or benefit, substantive or
procedural, enforceable at law or in equity by any party against the United States, its departments,
agencies, or entities, its oicers, employees, or agents, or any other person. 8/8/2020 Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster | The White House
https://www.whitehouse.gov/presidential-actions/memorandum-deferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/ 3/3
(d) You are authorized and directed to publish this memorandum in the Federal Register.
DONALD J. TRUMP

The IRS is allowing employers to extend the claim period for flexible spending arrangements (FSAs) and dependent care assistance programs and also allowing employees to make mid-year changes to §125 cafeteria plans [IR-2020-95, 5-12-20]. The changes may be applied retroactively to January 1, 2020. This guidance is due to COVID-19.

The IRS also raised the maximum carryover amount for health FSAs from $500 to $550 [Notice 2020-33]. This permanent change will be based on inflation indexing, which is used to determine the limit on salary reduction contributions under §125 cafeteria plans.

Mid-Year Elections Allowed

The IRS is allowing mid-year changes to elections during 2020 to §125 cafeteria plans for eligible employees. Employers may allow employees to:

• Make a new election on a prospective basis, if the employee initially declined to elect employer-sponsored health coverage
• Revoke an existing election and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis
• Revoke an existing election, provided that the employee attests in writing that the employee is enrolled or immediately will enroll in other health coverage

Employees may also revoke an election, make a new election, or decrease or increase an existing FSA election for health or dependent care assistance.

Courtesy of APA.

The IRS released guidance on how employers must report the amount of emergency sick leave wages and expanded family leave wages (together, qualified leave) paid to employees under the Families First Coronavirus Response Act (FFCRA) between April 1 and December 31, 2020 [Notice 2020-54, 7-8-20].

Employers are required to report these amounts either on Form W-2, Wage and Tax Statement, in Box 14 (Other), or on a separate statement. The notice instructs employers how to separately label the qualified leave. The notice also includes language employers may use for employee instructions to provide additional information about qualified leave wages.

Using Separate Statements

If an employer uses a separate statement to report the wages, and the employee receives a paper Form W-2, then the statement must be included with the Form W-2 provided to the employee. If the employee receives an electronic Form W-2, then the statement should be provided in the same manner and at the same time as the Form W-2.

Courtesy of the APA

The Internal Revenue Service (IRS) issued Notice 2020-54, which requires employers to separately report Qualified Sick Leave Wages and Qualified Family Leave Wages paid under the Families First Coronavirus Response Act^[1](FFCRA) on 2020 Forms W-2, Box 14, or on a separate statement.

This reporting is intended to provide employees who are also self-employed with information necessary to properly claim any FFCRA sick or family leave credits. There are three types of paid sick or family leave wages that should be separately reported (if applicable) in Box 14:

• Sick leave wages subject to the $511 per day limit because of care the employee required;
• Sick leave wages subject to the $200 per day limit because of care the employee provided to others; and
• Emergency family leave wages up to $200 per day and $10,000 in the aggregate.

Background

The FFCRA requires employers with fewer than 500 employees to provide paid leave if an employee is unable to work or telework due to circumstances related to COVID-19. Paid leave requirements and the related tax credit vary depending on the reason for leave:

1. Sick leave wages up to $511 per day ($5,110 in the aggregate) because of care required for the employee; i.e., the employee:
   • is subject to a federal, state or local quarantine or isolation order related to COVID-19;
   • has been advised by a health-care provider to self-quarantine due to concerns related to COVID-19;
   • is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
2. Sick leave wages at two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for care that the employee provided to others; i.e., the employee:
   • is caring for an individual who is subject to a quarantine or isolation order related to COVID-19, or has been advised by a health-care provider to self-quarantine related to COVID-19;
   • is caring for a son or daughter if the school or child-care facility has been closed or the child-care provider is unavailable due to COVID-19; or
   • is experiencing any other substantially similar condition specified by the Department of Health and Human Services (HHS).^[2]
3. Expanded paid family and medical leave at two-thirds of the employee’s regular rate of pay, to a limit of $200 per day and $10,000 in aggregate, if the employee is unable to work or telework because the employee is caring for a son or daughter whose school or child-care facility is closed related to COVID-19.

FFCRA Tax Credits Fully Offset Paid Leave

Eligible private-sector employers are entitled to fully refundable tax credits toward employment taxes to cover the cost of FFCRA leave, including qualified sick and family leave wages, plus allocable qualified health-plan expenses. FFCRA wages are exempt from employer Social Security taxes but are subject to employer Medicare taxes. However, the tax credit is increased by the employer’s share of Medicare tax on qualified leave wages.

Reporting Requirements

In order to provide self-employed individuals who also receive wages or compensation as employees with the information they need to properly claim any qualified sick or family leave credits for which they are eligible, IRS Notice 2020-54 requires employers to report to employees the amount of qualified sick leave wages and qualified family leave wages paid to the employees.

Self-employed individuals are also eligible for a refundable tax credit for qualified sick and family leave amounts. If a self-employed individual is eligible for a refundable credit for FFCRA sick leave and also receives qualified sick leave wages as an employee, the credit amount for the self-employed individual is reduced.

FFCRA amounts must be separately reported either in Box 14 of Form W-2 or on a separate statement, with the following descriptions (or similar language):

• Sick leave wages paid because of care required for the employee; described as “sick leave wages subject to the $511 per day limit.”
• Sick leave wages for care the employee provided to others, described as “sick leave wages subject to the $200 per day limit.”
• Qualified family leave wages, described as “emergency family leave wages.”

Employers must separately state each of these wage amounts either on Form W-2, Box 14 or on a separate statement. If a separate statement is provided and the employee receives a paper Form W-2, the statement must be included with the Form W-2 sent to the employee.  If the employee receives an electronic Form W-2, then the statement must be provided in the same manner and at the same time as the Form W-2.

Model Language for Employee Instructions

As part of the Instructions for Employee, under the instructions for Box 14, for Forms W-2 or in a separate statement sent to the employee, the employer may provide additional information about qualified sick and family leave wages and explain that these wages may limit the amount of credits to which the employee may be entitled with respect to any self-employment income. The following model language (modified as necessary) may be used:

“Included in Box 14, if applicable, are amounts paid to you as qualified sick leave wages or qualified family leave wages under the Families First Coronavirus Response Act. Specifically, up to three types of paid qualified sick leave wages or qualified family leave wages are reported in Box 14:

• Sick leave wages subject to the $511 per day limit because of care you required;
• Sick leave wages subject to the $200 per day limit because of care you provided to another; and
• Emergencyfamily leave wages.

If you have self-employment income in addition to wages paid by your employer, and you intend to claim any qualified sick leave or qualified family leave equivalent credits, you must report the qualified sick leave or qualified family leave wages on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, included with your income tax return and reduce any qualified sick leave or qualified family leave equivalent credits by the amount of these qualified leave wages.”

For further information, see IRS Notice 2020-59.
Courtesy of “ADP”

The U.S. Department of Labor (DOL) released a temporary rule to implement the emergency paid sick leave and expanded family and medical leave requirements included in the Families First Coronavirus Response Act (FFCRA) [85 F.R. 19326, 4-6-20]. The rule is effective April 1, 2020, until December 31, 2020.

In general, the FFCRA requires covered employers to provide eligible employees up to two weeks (80 hours) of paid sick leave for certain COVID-19-related reasons. The leave must be paid at either full pay or 2/3 pay, depending on the employee’s reason for taking leave.

The FFCRA also requires covered employers to provide up to 12 weeks of expanded family and medical leave, up to 10 weeks of which must be paid at 2/3 pay, when an eligible employee is unable to work because of a need to care for a son or a daughter whose school or place of care is closed, or whose child care provider is unavailable, due to COVID-19-related reasons.

The temporary rule explains what emergency paid sick leave and expanded paid family and medical sick leave benefits must be provided, which employees are eligible, employer notice requirements, and employer recordkeeping responsibilities.

Courtesy of the APA

On April 3, the IRS added a note to the Form 941, Employer’s Quarterly Federal Tax Return, and its instructions to provide guidance to employers that will claim the employee retention credit. The employee retention credit was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act to support employers that operate a business during 2020 and retain their employees, despite experiencing economic hardship related to the COVID-19 crisis.

The employee retention credit is a refundable tax credit equal to 50% of qualified wages paid to employees after March 12, 2020, and before January 1, 2021. Eligible employers that paid any qualified wages between March 13, 2020, and March 31, 2020, will include 50% of those wages together with 50% of any qualified wages paid during the second quarter of 2020 on their second quarter Form 941 to claim the employee retention credit. The credit should not be included on the first quarter Form 941.

The IRS created FAQs on the employee retention credit.

Courtesy of the APA

The Office of Child Support Enforcement (OCSE) issued a Dear Colleague Letter stating that noncustodial parents who receive stimulus payments under the CARES Act may have the checks offset by past due child support payments [DCL-20-02, 4-13-20].

Background

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act became law. The CARES Act provides qualifying individuals a recovery rebate of up to $1,200 (or $2,400 if married and filing jointly), plus up to $500 for each qualifying child. The IRS has started sending the payments already.

Past Due Payments

The CARES Act intentionally exempts these payments from reduction or offset against certain debts, but there is no exemption for child support debt. “As a result, the economic impact payments made to eligible noncustodial parents who owe past-due child support and who are subject to intercept under the Federal Income Tax Refund Offset Program will be offset by the amount of past-due child support,” OCSE said.

The noncustodial parent’s payment will not be offset if the debt does not exceed the minimum requirement for federal tax refund offset at the time of the match. Generally, this is at least $150 in past due support for the offset to apply for Temporary Assistance for Needy Families (TANF) or Title IV-E foster cases and $500 for non-TANF/IV-E or Medicaid-only cases.

Courtesy of the APA