The City of San José Urgency Ordinance No. 30390 (COVID-19 Paid Sick Leave Ordinance) does not provide any tax credit relief for small business owners. The San Jose Ordinance is meant to fill the gaps left by the federal Families First Coronavirus Response Act (FFRCA – HR6201). The Federal law exempts small businesses with fewer than 50 employees if the requirements of the law would jeopardize the viability of the business going forward.
The City of San Jose Ordinance is relying on the relief provided by the Federal law for small businesses to get tax credits. The IRS Notice 2020-22 gives details about how this tax credits will provide relief to employers entitled to the new refundable tax credits provided under the Families First Coronavirus Response Act (Families First Act), and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
All employers who pay qualified sick leave wages and qualified family leave wages required by the Families First Act are eligible for refundable tax credits under the Families First Act. Based on the act employers may receive a refundable tax credit against the employer’s share of quarterly (i) social security and medicare taxes based on 100% of qualified sick leave wages and qualified family leave wages plus (ii) qualified health plan expenses. The CARES Act provides for a refundable tax credit of up to 50% of the “Qualified Retention Wages” paid from March 13, 2020 through December 31, 2020, with a cap of $10,000 of wages paid per employee.
Employers are entitled to an employment tax credit for qualified sick leave wages paid pursuant to the Emergency Paid Sick Leave Act. The credit is capped at $511 per day for up to ten days per calendar quarter for employees that have COVID-19 or are basically quarantined or self-quarantined. The credit is limited to $200 per day for up to ten days per calendar quarter if the leave is due to the employee’s need to care for a child or other family member.
There are two alternatives for an employer to receive the benefit of these employment tax credits. One is through IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19. Another one is when the employer file Form 941, Employer’s Quarterly Federal Tax Return. Consult your bookkeeper/CPA on this matter. The federal government will not reimburse you if you pay above the cap that is provided in the law, that is why is so important to keep have in mind the cap at all times.