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How to claim COVID-19 tax credits via payroll

Employers may claim the Employee Retention Tax Credit and the tax credits available under the Families First Coronavirus Response Act (FFCRA) for relief during the COVID-19 pandemic. They do this first, by reducing the employer portion of Social Security taxes, and then, by reducing the employer’s payroll deposits in an amount equal to the refundable portion of the accrued credits, instead of depositing said amount with the IRS.…

The Employee Retention Tax Credit

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law. The CARES Act introduced the Employee Retention Tax Credit (ERTC), a new tax credit to incentivize employers, who are economically distressed due to COVID-19, to retain employees.…

How to claim COVID-19 tax credits under the FFCRA and the CARES Act

There are three COVID-19 related tax credits that were introduced under the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which are subject to various limitations:

UPDATE: Tax credits available under the Families First Coronavirus Response Act

On March 18, 2020, the Families First Coronavirus Response Act (FFCRA) was signed into law requiring employers with fewer than 500 employees to make payments for COVID-19 related FLMA leave and paid sick leave required by the Act. To lessen this financial burden to employers, the act provides for refundable tax credits to offset payroll taxes. The FFCRA tax credits will be provided for eligible wages paid from April 1, 2020, to December 31, 2020.…

Tax credits available under the Families First Coronavirus Response Act

This post was updated on April 7, 2020. Please read the update here.

On March 18, 2020, the Families First Coronavirus Response Act (FFCRA) was signed into law requiring employers with fewer than 500 employees to make payments for COVID-19 related FMLA leave and paid sick leave required by the act. To lessen this financial burden to employers, the act provides for refundable tax credits to offset payroll taxes. The FFCRA tax credits will be provided for eligible wages paid from April 2, 2020 to December 31, 2020.…

IRS issues guidance on excise tax on executive compensation of tax-exempt entities

The IRS recently issued Notice 2019-09 (Notice), which provides guidance with respect to the 21 percent excise tax on remuneration in excess of $1 million and excess parachute payments by “applicable tax exempt organizations” (ATEOs) applies under Code Section 4960. In general Code Section 4960 and the Notice apply concepts from Code Sections 162(m) (which denies a deduction to publicly traded corporations with respect to payments of compensation in excess of $1 million to certain covered employees) and 280G (which, along with Code Section 4999, imposes an excise tax and disallows a deduction with respect to excess parachute payments). Code …

IRS publishes transition relief regarding part-time employees and 403(b) plans

The IRS recently issued Notice 2018-95 (the Notice), which clarifies the circumstances under which part-time employees must be given the opportunity to make deferral elections under their employers’ 403(b) plans. In particular, the Notice provides transition relief from the once-in-always-in (OIAI) condition for excluding part-time employees. Tax-exempt and governmental employers who sponsor 403(b) plans will want to confirm that they are including and excluding part-time employees correctly under this latest guidance.…

IRS letter ruling generates interest in employer student loan benefit plans, but be aware of testing and other issues

The Internal Revenue Service (IRS) recently issued a private letter ruling, PLR 201833012 (PLR) that has generated interest among employers about student loan benefit programs. An IRS official at a recent conference, however, cautioned practitioners to read the PLR because the scope of the PLR is more narrow than what some headlines may have led people to believe. In particular, the PLR did not allow employers to authorize distributions from 401(k) plans to allow employees to repay their student loans. Instead, the PLR allowed an employer to make nonelective contributions to the company’s 401(k) plan on behalf of employees who …

House and Senate have their sights on deferred compensation in proposed tax bills

A week after telling everyone to “relax” about the proposed executive compensation changes in the Tax Cuts and Jobs Act, we have to admit that we have been watching anxiously as the proposed bills move through the legislative process. The executive compensation items that we discussed last week  have experienced quite a journey in the past week, with the House Ways and Means Committee making some welcome changes and the Senate Finance Committee introducing its own new bill. We briefly provide the following updates.…

Proposed tax bill would make big changes to (and create new opportunities for) executive compensation

Three games into the 2014 National Football League season, the Green Bay Packers had a 1-2 record. Fans were panicking. Many were questioning whether the Packers and its quarterback, Aaron Rodgers, were doomed to have a bad season. Rodgers responded with a simple message for fans: “R-E-L-A-X”. The Packers redoubled their efforts and made the playoffs that year, showing that the initial panic was rather silly. A similar scenario could be playing out with respect to the nonqualified deferred compensation and other executive compensation provisions of the recently proposed Tax Cuts and Jobs Act (the Proposed Act). Some of the …

Federal disaster relief available to employees in aftermath of natural disasters

Natural forces wreaked havoc on a number of states and territories this fall when Hurricanes Harvey, Irma and Maria made landfall. The federal government sprang into action by making disaster declarations for affected areas to provide aid in the aftermath of these tragic events. More recently, the Federal Emergency Management Agency (FEMA) declared parts of northern California to be major disaster areas, due to highly destructive wildfires that ravaged parts of the state. In the wake of these disasters, employers are asking how they can help their employees and their communities.

Fortunately, there are options available to companies making an …

IRS previews qualified plan determination letter changes in new guidance

The Internal Revenue Service (IRS) issued guidance on Jan. 4, 2016, that clarifies certain implications of its previously announced changes to the employee plans determination letter program. These clarifications, announced in Notice 2016-03 (Notice) are necessary to cover open issues raised from prior guidance that in effect shuts down the determination letter program for most amendments to individually designed plans.…

Protecting Americans from Tax Hikes Act of 2015

Leaders in the U.S. Congress reached a deal on Tuesday night to permanently extend many of the 52 provisions of the Internal Revenue Code that expired on Dec. 31, 2014. The full Congress approved the bill on Dec. 18, 2015 and President Obama signed the bill into law. The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) extends the popular research and development credit, bonus depreciation deduction, and the enhanced Section 179 depreciation deduction. Congress had previously approved an extension of these provisions—colloquially known as “extenders”—in the years 2012 and 2014 by legislating the extenders to apply …

Nonqualified deferred compensation plan guidance from the IRS appears to be on the horizon

Ever since the series finale of “Mad Men,” I’ve been thinking a lot about old commercials. One commercial in particular involves Heinz ketchup. In the ad, someone would turn the bottle upside down, and the ketchup would take an extremely long time to pour out of the bottle and onto a sandwich. An announcer would then say the slogan: “The best things come to those who wait.” Apparently, Heinz wanted us to believe that patience was a virtue—rewarded by its ketchup.

Marketing gimmicks aside, the IRS has taken a similar view (towards patience, not ketchup) with respect to tax guidance …

Bright lines getting blurrier: Recent Ohio Supreme Court decision changes factors for determining who is an Ohio resident for state tax purposes

Cunningham v. Testa, Slip Opinion No. 2015-2744 (July 8, 2015)

Recently, the Supreme Court of Ohio issued an opinion in Cunningham v. Testa which significantly alters the application of a statute for determining non-Ohio domicile for state tax purposes. Prior to the ruling, the statute seemed to set forth two factors which, when verified, would create an irrebuttable presumption of non-residency for state income tax purposes:

  1. too few contact periods; and
  2. an abode outside of Ohio.

Following this ruling, a taxpayer may now be forced to prove sufficient additional facts to show that he would legally be considered domiciled …

Like old soldiers, Employee Plans Determination Letter Program fades away

The Internal Revenue Service (the “IRS”) issued Announcement 2015-19 on July 21, 2015, in which the agency announced that its long-standing and widely used retirement plan determination program for individually designed plans was being significantly curtailed. The IRS indicated that this curtailment, which has been rumored for months and now becomes official, is attributable to a need to more efficiently direct its limited resources in an era of budget cutbacks for the agency.

Under the announcement, and effective as of January 1, 2017, the currently-available staggered 5-year determination letter remedial amendment cycles for individually designed plans generally will be consigned …

IRS issues 409A guidance—need to correct before the year of vesting

The Office of Chief Counsel of the Internal Revenue Service (the “IRS”) recently confirmed that violations of Section 409A of the Internal Revenue Code (the “Code”) could be corrected without penalty in any taxable year before the taxable year in which an arrangement became vested. However, the IRS went on to clarify that the Code would require immediate recognition of taxable income of the amounts deferred and the assessment of an additional 20% tax if taxpayers waited until the taxable year of vesting to correct an error.

In Chief Counsel Advice 201518013 (the “CCA”),the IRS clarified what some perceived to …

Supreme Court says give credit where credit is due

In Comptroller of Treasury of Maryland v. Wynne, 135 U.S. 1787 (2015), the Supreme Court held that Maryland’s tax scheme was unconstitutional because it discouraged interstate commerce in violation of the Dormant Commerce Clause of the U.S. Constitution. Maryland’s tax scheme gave taxpayers credit for taxes paid to other states against the Maryland state income tax, but did not provide a credit against the county income tax. Therefore, out-of-state income was subject to double taxation, a tax burden not imposed on in-state income.

The Dormant Commerce Clause only gives Congress the ability to regulate interstate commerce, not intra

Public companies should review stock option plans to ensure they qualify for exception to $1 million deduction limit

The IRS and Treasury Department recently issued final regulations under Code Section 162(m) that, as the IRS describes it, “clarifies” stock and equity-based compensation plan drafting issues. Of course, whether something represents a clarification or a substantive change lies in the eye of the beholder (particularly if that beholder is a politician or regulator in need of political cover). In this case, however, the IRS generally is correct to describe the final regulations as clarifications. With respect to stock options and SARs, the new regulations reflect what were widely held opinions in the executive compensation community. With respect to restricted …

The health care reform shared responsibility excise tax missing link: employer rights

Back in 2011, I mentioned a missing link in the health care reform Section 4980H shared responsibility employer excise tax scheme. 42 U.S.C. Section 18081 requires the establishment of an appeals and redeterminations process for penalty assessments, and acknowledges a problem with the provision itself. It requires the Secretary of Health and Human Services to consult with the Secretary of Treasury, study administration of employer responsibility, and provide a report to certain Congressional committees by January 1, 2013. This report was to address the procedures and/or legislative changes necessary to ensure the following rights are protected:

(A) The rights of …

New wrinkle for the Delinquent Filer Voluntary Compliance Program—trap for the unwary

Plan administrators who fail to timely file Form 5500 annual returns/reports are subject to penalties under both Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code (the “Code”). The Department of Labor (the “DOL”) has the authority to assess civil penalties of up to $1,100 per day against plan administrators that fail to file complete and timely returns/reports. In addition, the Internal Revenue Service (the “IRS”) may impose further penalties of $25 per day up to a maximum of $15,000 per return against administrators that fail to file complete and timely returns/reports.…

IRS Safe Harbor for accepting rollover contributions – Revenue Ruling 2014-9 and Form 5310

The Form 5310 Application for Determination for Terminating Plan instructions, updated in December 2013, added an odd and time-consuming new requirement, “Submit proof that any rollovers or asset transfers received [during the year of plan termination and five prior plan years] were from a qualified plan or IRA (for example, DL [determination letter] and timely interim amendments).”

The reason we find this instruction odd is that we are not aware of any requirement for a plan administrator to obtain and retain this proof. Treasury Regulation Section 1.401(a)(31)-1, Q&A-14 provides a safe harbor for the reasonable acceptance of a rollover that …

Substantial risk of forfeiture guidance clarifies when Section 16 short-swing profit liability can defer taxation of equity compensation awards

Legend had it at my law school that one day, a lost student walked into a torts class and asked the professor if this class was wills, trusts, and estates. The torts professor replied, “We haven’t gotten that far yet.” A dry sense of humor on the professor’s part? Perhaps. His point, however, was that the law can be a seamless web, with one area of law often having an impact on another. This point often is true with respect to the tax and securities laws.

We blogged previously that the IRS and Treasury issued final regulations under Code Section …

Supreme Court unanimously holds that severance payments generally are subject to FICA taxes

Clients frequently ask us if severance payments are subject to tax withholding. The answer is that they clearly are subject to income tax withholding, but there has always been some ambiguity about the circumstances in which they are subject to FICA tax withholding. The IRS has always taken the position that severance payments are not subject to FICA tax withholding only when the severance payments are tied to the receipt of unemployment benefits. When the issue arose in litigation, however, the Circuits were split as to whether to side with the IRS, or whether a somewhat broader FICA exception should …

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