Administrators, you know we love you, but if the title hasn't already signaled you to do this please do this now: hit “forward” and send this to your business officials…. Ah, there we go. Now we’re talking to the rule followers!
We’ve heard your questions! Are schools entitled to tax breaks for providing FFCRA leave? Do we get relief from the employer’s portion of social security taxes? Does this change how we file form 941? Was FFCRA actually extended when President Trump (finally) signed the new stimulus bill, or not?!
We can help with the last question: FFCRA was sort of extended, on a voluntary basis. We’ll cover more of that below. But for all these tax questions, you know our standard response: “Call your auditor/accountant!” There are two reasons for that. First, we aren’t licensed to give you tax advice. Second, when it comes to IRS codes and taxation, we have to call in a ringer.
FFCRA, SS Tax, and Form 941. KSB reached out to Rich Lohr of the accounting firm Porter & Company in Sioux City, Iowa. Rich and his colleagues provided the following summary which hits on the questions we’ve heard most from business officials regarding FFCRA leave and tax issues:
Can governmental employers who provide paid leave wages receive tax relief under the Family First Coronavirus Response Act (FFCRA)?
Political subdivisions, like school districts, are not defined as eligible employers under FFCRA. See Internal Revenue Service, Special Issues for Employers: Taxation and Deductibility of Tax Credits (Updated November 27, 2020). Thus, although school districts are required to provide sick and family leave wages, they are not entitled to receive tax credits for providing paid leave wages, or for health care expenses allocable to such wages. Id. Nor are they entitled to credits for employee retention. Id.
However, sick leave and family leave wages paid under FFCRA are excluded from the definition of wages under section 3111(a) of the Internal Revenue Code of 1986. Families First Coronavirus Response Act, Pub. L. No. 116-127 § 7005(a), 134 Stat. 178 (2020).
School districts are therefore not required to pay the employer’s 6.2% social security tax on sick and family leave wages. See I.R.C. § 3111(a) (2018). This is the only “break” school districts are provided under FFCRA. School districts must continue to withhold the employee portion of the social security tax. Medicare taxes are not affected by this, so continue to withhold both the employer and employee share of this tax.
So, when filling out Form 941, enter your Qualified sick leave wages on Line 5a(i) in Column 1, and your Qualified family leave wages on Line 5a(ii) in column 1. The reduced multiplier of 6.2% (instead of the normal 12.4%) on these lines is how the credit is provided. Remember, that 6.2% is the amount that is still withheld from the employee’s pay.
IRS guidance states that eligible employers may also request an advance payment by submitting Form 7200 – “Advance Payment of Employer Credits Due to COVID-19”. Id. Although entitled to request an advance payment, we would encourage employers to first reduce employment tax deposits instead of filing for an advance payment.
If necessary, you can request the amount of the credit that exceeds your reduced deposits by filing Form 7200, or wait to get a refund when you claim the credits on your employment tax return (Form 941).
Also, since government employers are not Eligible Employers, they are not entitled to receive tax credits for any health care expenses allocable to paid leave they provide under the FFCRA. Special Issues for Employers: Taxation and Deductibility of Tax Credits (Updated November 27, 2020).
If you have further questions or need assistance you can contact Rich Lohr, Porter & Company, PC, Certified Public Accountants, 4111 Floyd Blvd, Sioux City, IA 51108 (712) 239-0536.
shutterSo, there you have it, straight from the horse's mouth fingertips of someone much smarter about this stuff than us. Of course, if you have additional questions you should direct those to Rich if you work with him or your own auditor/accountant that you rely on for tax advice for your school or ESU. Major thanks to Rich and his colleagues for the input here!
So, is FFCRA extended? Sort of. The new stimulus bill allows employers to voluntarily continue providing FFCRA to employees from January 1, 2021, through March 31, 2021. However, even if you continue providing FFCRA leave, it is not a “new” batch of leave. The continuation basically means that the employer voluntarily extends the end date of FFCRA from December 31, 2020, up to no later than March 31, 2021. It does not refill leave buckets under FFCRA; it simply lets employees who have not exhausted their leave take FFCRA leave under the same rules that have been in effect since last April.
Here’s the key: most employers (but not school districts or ESUs) are incentivized to continue the existing FFCRA coverage to employees because the new stimulus extends the ability for covered employers to receive the tax credits Rich discussed above. However, as you know by now, those credits do not apply to public employers like schools and education service agencies.
So should we comply with FFCRA voluntarily? Maybe, but you should talk this through with your school lawyer and auditor/accountant. Many schools are considering providing some type of COVID-related leave to employees beyond December 31, 2020, the expiration date for mandatory leave under the FFCRA for covered employers. It appears from the new stimulus bill that the relief from the employer share of social security taxes may also continue through March 31, 2021, for public employers that continue FFCRA leave. You’ll want to get advice from your accountant on that before making a decision on that basis.
If we assume that’s true and your board was likely to provide some type of new COVID leave anyway, it may be worth continuing FFCRA for those employees who have not used their FFCRA allotments rather than creating “new” paid leave for everyone. At least that way you could save the employer-side social security tax. Again, this is just one factor you and your board should consider when implementing any new leave policies or addendums to your negotiated agreement. The savings, if any, compared to the administrative hassle will be a local level decision that will likely vary.
If you have any questions about the non-tax-specific items in this article, please feel free to contact any one of us at KSB, or you can always call the office (402-804-8000) or drop an email to all of us by using ksb@ksbschoollaw.com. Happy (?) New Year!