- Employers that qualify for the Coronavirus Aid, Relief, and Economic Security (CARES) Act's employee retention credit may treat health plan expenses paid to furloughed employees as qualified wages for purposes of the retention credit, according to a guidance document updated May 7 by the IRS.
- Qualified employers that do not pay wages to laid off or furloughed employees but continue health coverage for those employees may treat the associated health plan expenses as qualified wages, the IRS said. Any such health plan expenses must be paid or incurred after March 12, 2020, and before January 1, 2021, and they are subject to a maximum of $10,000 per employee for all calendar quarters for all qualified wages.
- The amount of qualified health expenses taken into account when determining the amount of qualified wages for a given employee should not include amounts that the employee paid for with after-tax contributions, IRS said. If an employee participates in more than one health plan sponsored by the employer, the allocated expenses of each plan in which the employee participates are aggregated for that employee.
The employee retention credit is one of a few financial options available to employers as they deal with the effects of the COVID-19 pandemic.
Qualifying wages for the purpose of the employee retention credit are based on the employer's average number of employees in 2019, according to the IRS. If the employer had less than 100 employees on average, the credit is based on wages paid to all employees, regardless of whether they worked or not. If the employer had more than 100 employees on average, the credit is allowed only for wages paid to employees who did not work during the calendar quarter.
IRS has also detailed the tax credits available to employers who are responsible for providing paid leave under the Families First Coronavirus Response Act (FFCRA). The provisions include two refundable payroll tax credits designed to grant 100% reimbursement for all paid leave pursuant to the FFCRA, including health insurance costs. Though sources who previously spoke to HR Dive welcomed news of the credits, some cautioned that the financial relief may arrive too late for businesses experiencing financial hardship.
Present actions may not be the last bit of tax relief provided to U.S. businesses. A new bill released May 12 by Democrats in the House of Representatives would provide funding that could be used to enhance tax credits for employers.