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Coronavirus Aid, Relief, and Economic Security Act (“CARES”) Summary of Payroll Related Items

The CARES Act was signed into law on Friday March 27th, 2020. This legislation is estimated to cost $2.2 trillion dollars and contains numerous provisions to benefit both individuals and businesses. This document is addressing items in the legislation related to payroll.

Employee Retention Credit

Who is eligible?

  1. A business that is fully or partially suspended under orders from a governmental authority limiting commerce, travel, or group meetings due to COVID-19.
  2. A business may also claim the employee retention credit if the business experiences a 50% decline in gross receipts in any calendar quarter, meaning gross receipts are less than 50 percent of gross receipts in the same calendar quarter in the prior year.

When is the legislation effective?

It applies to any wages paid on March 13, 2020 through December 31, 2020.

What are the benefits?

The employer receives a credit against employer paid social security tax equal to 50% of the qualifying wages. Qualifying wages for each employee are limited to $10,000 for the year.

How is the benefit paid?

The employer claims the credit against the applicable payroll taxes paid on future payrolls. If the credit exceeds the applicable payroll taxes, then the excess will be refunded to the employer.

What are the limitations?

The credit is not available if the employer is a borrower under the Payroll Protection Loan Program. Further, the amount of the credit is reduced by any credits allowed under Section 7001 or 7003 of the Families First Coronavirus Relief Act (i.e., the sick leave and family leave credits).

Delay of Employer Payroll Tax Deposits

Who is eligible?

All employers

When is the legislation effective?

It applies to any wages paid on March 28, 2020 through December 31, 2020.

What are the benefits?

An employer may defer payment of the employer’s share of social security tax. Half of this deferred amount would be due on December 31, 2021 and the other half by December 31, 2022.

What are the limitations?

Note that the tax payment is only deferred. It is still due to the IRS, and penalties will be incurred if the amounts are not paid by the due dates.

Expansion of Items Available for Reimbursement under FSA, HSA, and HRA Plans

The Act offers important updates for pre-tax health care plans. This act permanently reinstates coverage of OTC (over the counter) drugs and medicines as eligible for reimbursement for pre-tax plans, without need for a prescription.

What this means:

Prescriptions will no longer be required for over-the-counter drugs, including items like Tylenol, Claritin, Tamiflu, etc. when purchased with an FSA, HSA, or HRA. This will be retroactive to January 1, 2020. Prescriptions have been required since 2011, causing unnecessary trips to the doctor, or payment with after tax dollars. The act also allows for menstrual care products to be eligible as well. We are able to process these claims today, but we are waiting for an updated list of eligible products and implementation of this list by participating merchants before debit cards can be used for OTC purchases.

Employer Payments of Student Loan Debt

The Act will now permit employers to make tax-free payments of up to $5,250 to or on behalf of employees for student loan debt. Payments of principal and interest, whether made to a lender or an employee, on a qualified education loan before January 1, 2021, would be excluded from the employee’s income and not subject to employment taxes.

Technology Updates

Payroll Systems will be releasing technology updates with the functionality necessary to administer these plans as soon as the updates are available. We anticipate having these features available soon.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.