Making Sense of COVID-19 FAQs Part 1

Since the pandemic of COVID-19 began I have been getting a tremendous amount of questions about the different tax credits and how those tax credits relate to the Form 941. Although I posted quite a few blog items concerning these credits I thought what I might do now is go through the different FAQs that are on the IRS website and take a closer look at specific information the IRS has provided. Over the next several blogs I will pick one or two of the FAQs and discuss them and how they affect payroll and/or the 941 form. I am not going to be covering them in numerical order but rather picking the ones that I think are the most relevant to the questions I have been receiving. I will give the FAQ number and under what topic they can be found, as well as the link if you want more information. One bad thing about the FAQs on this website is if they do jump around quite a bit. You start off at question four and then must wander off to question 44 to get the remainder of the answer. So, what I am going to try to do is put it all in one place. Today’s blog gets us started with our first question.

Under the IRS topic Covid-19-Related Tax Credits: General Information FAQs. FAQ number 4 deals with documentation. The question reads:

What documentation must an eligible employer retain to substantiate eligibility to claim the tax credits?

In this case the question is asking about the tax credits under the paid family leave and paid sick leave along with the allocable qualified health plan expenses and the eligible employer share of Medicare taxes. In answering this question, the IRS is not giving us any specifics when it comes to the type of records that we need to maintain. They simply list the normal records that we would maintain in a payroll department including Form 941. However, they do refer to another FAQ, specifically number 44 under the IRS Topic Covid-19-Related Tax Credits: How To Substantiate Eligibility And Periods Of Time For Which Credits Are Available FAQs. But to truly answer the question we not only need number 44 but also number 45 and number 46 under this topic.

Number 44 reads: what information should an eligible employer received from an employee and maintain to substantiate eligibility for the sick leave our family leave credits? The answer provided is as follows: An Eligible Employer will substantiate eligibility for the sick leave or family leave credits if the employer receives a written request for such leave from the employee in which the employee provides:

  1. The employee’s name
  2. The date or dates for which leave is requested
  3. A statement of the COVID-19 related reason the employee is requesting leave and written support for such reason
  4. A statement that the employee is unable to work, including by means of telework, for such reason.

In the case of a leave request based on a quarantine order or self-quarantine advice, the statement from the employee should include the name of the governmental entity ordering quarantine or the name of the health care professional advising self-quarantine, and, if the person subject to quarantine or advised to self-quarantine is not the employee, that person’s name and relation to the employee.

In the case of a leave request based on a school closing or child care provider unavailability, the statement from the employee should include the name and age of the child (or children) to be cared for, the name of the school that has closed or place of care that is unavailable, and a representation that no other person will be providing care for the child during the period for which the employee is receiving family medical leave and, with respect to the employee’s inability to work or telework because of a need to provide care for a child older than fourteen during daylight hours, a statement that special circumstances exist requiring the employee to provide care.

But that still does not tell us exactly what that documentation should look like. That is addressed in question number 45, which reads: what additional records should an eligible employer maintained to substantiate eligibility for the sick leave or family leave credit? This answer gets down to the actual documentation from the payroll system. The employer would need to create and maintain records that include the documentation to show how the employer determine the amount of qualified second family leave wages paid to employees are eligible for the credit, including records of work, telework and qualified sick leave and qualified family leave. The documentation should also show how the employer determine the amount of qualified health plan expenses that the employer allocated to those wages. This of course is in addition to the completed 941 form and any copies of Form 7200. These records could come from your payroll system directly via a report, or if that is not possible, an Excel spreadsheet.

Finally question number 46 deals with record retention time limits. Covid-19 related records fall under the same category as all other employment tax records. This is basically four years plus current.

Department of Labor Roadshow Webinars Are Coming Your Way

The U.S. Department of Labor will host four webinars in June and July to discuss how the Department is helping workers and employers by reducing regulatory burdens and making it easier to understand and comply with the law. The webinars will also provide an opportunity for workers, employers, and state and local governments to ask questions and discuss how the Department can expand and improve access to its compliance assistance materials.

All events will include U.S. Department of Labor Deputy Assistant Secretary for Policy Jonathan Wolfson.

The webinars will be hosted by the Department’s Office of the Assistant Secretary for Policy and its Office of Compliance Initiatives. Attendance is free, but attendees must pre-register online. If you have questions, please contact Marisela Douglass at douglass.marisela@dol.gov.

The four webinars are:

Agriculture

Guest Speaker: Wage and Hour Division Administrator Cheryl Stanton

Tuesday, June 23, 2020, 1:00 p.m. to 2:15 p.m. EDT

Register at: Compliance Assistance Webinar 1

 

Manufacturing and Construction

Guest Speaker: Occupational Safety and Health Administration Principal Deputy Assistant Secretary Loren Sweatt

Thursday, June 25, 2020, 1:00 p.m. to 2:15 p.m. EDT

Register at: Compliance Assistance Webinar 2

 

Food Service, Hospitality, and Retail

Guest Speaker: Employment and Training Administration Deputy Assistant Secretary Amy Simon

Tuesday, June 30, 2020, 1:00 p.m. to 2:15 p.m. EDT

Register at: Compliance Assistance Webinar 3

 

Health Care and Emergency Responders

Guest Speaker: Employee Benefits Security Administration Acting Assistant Secretary Jeanne Klinefelter Wilson

Wednesday, July 1, 2020, 1:00 p.m. to 2:15 p.m. EDT

Register at: Compliance Assistance Webinar 4

Opining on Regular Rate of Pay

The U.S. Department of Labor (DOL) has issued three new opinion letters that address compliance issues related to the Fair Labor Standards Act (FLSA).  As a reminder to my readers, an opinion letter is an official, written opinion by the DOL’s Wage and Hour Division (WHD) on how a particular law applies in specific circumstances presented by the employer that requested the letter.  The current group of letters issued include:

 

FLSA2020-3: Addresses excludability of longevity payments from the regular rate of pay. This opinion rules that longevity payments made to employees that clearly “must or shall” be paid cannot be excluded and must be used to calculate the regular rate of pay.  However, if the longevity payment is worded as that it may or may not be awarded, up to the discretion of the employer, then it would not need to be included in the calculation for regular rate of pay.

FLSA2020-4: Addresses excludability of referral bonuses from the regular rate of pay. The employer is offering a referral bonus to employees not involved in recruiting or human resources and would be issued in two parts, one immediately and one if the employee is still employed after a year and so is the employee who was referred.  The opinion states that the first portion of the bonus would not be included in the regular rate of pay calculations as it is not remuneration for employment as it is a voluntary program.  However, the second installment of the bonus would be included as it would be considered the same as a longevity bonus. If the employee received the bonus whether they were still employed or not, it would not be includable.

FLSA2020-5: Addresses excludability of an employer’s contributions to a group-term life insurance policy from the regular rate of pay.  In essence, the opinion states that just because a wage paid is subject to federal taxes under the Internal Revenue Code, does not make the same payment includable in the regular rate of pay.

For more information on opinion letters, see the WHD website.

Last Chance to Register for Form 941:COVID-19 Edition Webinar

Today is the last day to register for our upcoming webinar, Form 941: CCOVID-19 Edition being held tomorrow. The passage of the Families First and Cares Acts have caused massive changes to IRS Form 941 that affect the final three quarters in 2020! 16 new lines now appear on this form along with changes to two others! Are you ready to meet these changes and handle them correctly? Join me tomorrow,  Thurs., May 28th at 10 am Pacific as I examine the Form 941–COVID-19 edition in depth. Use coupon code cjyfrqa6 at checkout for a 10% discount.

The webinar will cover:

  • What’s New for Q2-Q4 2020
  • Families First Act: Credits for Paid Sick Leave and Paid Family Leave
  • CARES Act: including deferring Employer’s Social Security
  • IRS Form 7200: Purpose for the form and how it applies to you
  • Line by line review of the massive changes of the New Revised Form 941

Submitted to the APA for approval for 1.5 RCHs

Child Support Payments & EFT

The Office of Child Support Enforcement published a guide for employers to begin sending child support payments electronically. According to the guide:

All states and territories accept child support payments at their State Disbursement Unit (SDU) by Electronic Funds Transfer (EFT)/Electronic Data Interchange (EDI), the primary method of sending payments electronically. The EDI portion of the transmission includes identifying information so the payment can be properly credited to the payor’s case(s). SDUs centralize the collection and disbursement of all child support payments withheld by employers as well as other types of payments. Using EFT/EDI is well worth the initial effort. Employers that switch from sending paper checks to electronic payments will enjoy lower costs, fewer errors, and faster processing.

Sending child support payments electronically will save an employer time and money

  • Eliminates the cost of printing paper checks and supporting documents
  • Eliminates the cost of postage and delays due to lost or misdirected mail
  • Reduces check handling and processing costs
  • Reduces data entry errors
  • Gets child support payments to custodial parents faster

Getting Started with EFT/EDI

There are several ways to send a child support payment electronically:

  • By using your own payroll software to send Automated Clearing House (ACH) credit payments (similar to direct deposit) through the Federal Reserve’s banking system with EFT/EDI, using the standard child support addendum segment
  • Through a state’s web-based payment service—contact the state child support agency where you send payments for details
  • By using a payroll service provider that is already sending child support payments electronically
  • By using your bank’s online bill-paying serviceThree Steps to Implement

Step 1: Determine whether your payroll/accounting system supports electronic payments for child support.  If it does not, you may want to explore these options:

  • In-house information technology staff may be able to make programming changes so that you can produce electronic payments for child support, including the EDI DED (Deduction) child support addendum record that child support agencies need to identify the payments.
  • Your payroll/accounting software developer may have an enhancement that supports electronic payments for child support. Contact your user’s group or software representative.
  • Your bank may have a software package that will enable you to produce the file formats necessary for electronic payments. Contact your bank and ask for someone in Cash Management, Treasury Management, or Treasury Services.

Step 2: Contact the appropriate child support agency’s SDU.

  • This is not always the child support agency or SDU where you are located. It is the agency or SDU in the state that issued the underlying child support order or where you currently send funds.
  • Find out the EFT/EDI start-up procedures for the child support agency where you send funds. Do not attempt to transmit child support payments electronically without this information.

Step 3: Conduct the EFT/EDI start-up procedures for each of the child support agencies you contacted in Step 2.  These procedures will typically include:

  • An exchange of basic banking information (routing codes, account numbers), Federal Employer Identification Number (FEIN), and locator code information with the child support agency.
  • A reconciliation between child support agency records and employer records of names, Social Security numbers, and case identification numbers so that each employee’s withholdings are properly credited.
  • A transmission of an initial test file, or pre-note, to ensure that the ACH records are formatted and transmitted properly.

Where to go for more information

There are standard record specifications for child support payments.  NACHA (National Automated Clearing House Association) publishes the User Guide for Electronic Child Support Payments (PDF)visit disclaimer page to provide SDUs, employers, and their financial institutions with current formats, definitions, and implementation recommendations to remit child support payments and payment information electronically through the ACH network using current conventions and standards.

 

Form 941: COVID-19 Edition Webinar

The passage of the Families First and Cares Acts have caused massive changes to IRS Form 941 that affect the final three quarters in 2020! 16 new lines now appear on this form along with changes to two others! Are you ready to meet these changes and handle them correctly? Join me on Thurs., May 28th at 10 am Pacific as I examine the Form 941–COVID-19 edition in depth. Use coupon code cjyfrqa6 at checkout for a 10% discount.

The webinar will cover:

  • What’s New for Q2-Q4 2020
  • Families First Act: Credits for Paid Sick Leave and Paid Family Leave
  • CARES Act: including deferring Employer’s Social Security
  • IRS Form 7200: Purpose for the form and how it applies to you
  • Line by line review of the massive changes of the New Revised Form 941

Submitted to the APA for approval for 1.5 RCHs

Avoiding Common Errors When Filing Form 7200

In news for tax professionals and small businesses, the IRS has advised those who are beginning to deal with Form 7200, Advance Payment of Employer Credits Due to COVID-19 to do so carefully to avoid making error when completing the new form.  Mistakes in completing the form can lead to processing delays, which in turn delays the IRS approving the credits.

Background: The Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief and Economic Security or CARES Act both provide refundable tax credits for the employer.  FFCRA requires employers (of a certain size) to provide paid sick leave or paid family leave.  To offset the cost of this leave, the employer is permitted to take refundable tax credits against employment taxes.  The CARES Act permits the employer to take a “employee retention credit” equal to 50% of “qualified wages”.  This is also offset against employment taxes. However, it is possible for these credits to exceed the employer’s actual tax deposits.  In this case, the employer is permitted to receive the excess paid leave credits or the employee retention credit in advance by using Form 7200.

 

However, the IRS has noted some common errors or mistakes in filling out the form, slowing the process.  The errors to avoid include:

  • Missing or inaccurate Employer Identification Number (EIN). Each EIN on a tax return should be exact.
  • Checking more than one box for applicable calendar quarter. Only one box should be checked for the correct quarter.
  • Check more than one box for Part 1, Line A. Likewise, only one box should be checked in Part 1, Line A.
  • Skipping Part 1, Line B. Complete Part 1, Line B. In Part 1, Line B check either “Yes” or “No”.
  • Not fully completing Part II. Complete all the lines in Part II. This identifies which credits are being claimed.
  • Not completing Part II, Lines 1-8. Part II should be completed using dollar amounts, not the number of eligible employees. All lines in Part II should be completed with an actual dollar amount.
  • Inputting the number of eligible employees on lines in Part 2, instead of dollar amounts.
  • Not checking the math on lines 4, 7 and 8 (i.e., subtracting instead of adding or vice versa)
  • Not signing the form (automatic rejection)
  • Wrong individual signing the form
    • Sole proprietorship—The individual who owns the business.
    • Corporation (including a limited liability company (LLC) treated as a corporation)—The president, vice president, or other principal officer duly authorized to sign.
    • Partnership (including an LLC treated as a partnership) or unincorporated organization—A responsible and duly authorized partner, member, or officer having knowledge of its affairs.
    • Single-member LLC treated as a disregarded entity for federal income tax purposes—The owner of the LLC or a principal officer duly authorized to sign.
    • Trust or estate—The fiduciary.

Also, Form 7200 may be signed by a duly authorized agent of the Eligible Employer if a valid Form 2848 (Power of Attorney and Declaration of Representative) has been filed.

For more information about Form 7200 and its use can be found on IRS.gov: About Form 7200, Advance Payment of Employer Credits Due to COVID-19.

WHD Issues Final Rule on Bonuses for Fluctuating Workweek Employees

On May 20, 2020, the U.S. Department of Labor Wage Hour Division (WHD) announced a final rule that allows employers to pay bonuses or other incentive-based pay to salaried, nonexempt employees whose hours vary from week to week. The final rule clarifies that payments in addition to the fixed salary are compatible with the use of the fluctuating workweek method under the Fair Labor Standards Act (FLSA).

In the final rule, the Department:

  • Adds language to 29 CFR 778.114(a) to expressly state that employers can pay bonuses, premium payments, or other additional pay, such as commissions and hazard pay, to employees compensated using the fluctuating workweek method of compensation. (The rule also states that such supplemental payments must be included in the calculation of the regular rate unless they are excludable under FLSA sections 7(e)(1)–(8)). The rule grants employers greater flexibility to provide bonuses or other additional compensation to nonexempt employees whose hours vary from week to week, and eliminates any disincentive for employers to pay additional bonus or premium payments to such employees.
  • Addresses the divergent views expressed by the Department and courts―and even among courts―that have created legal uncertainty for employers regarding the compatibility of various types of supplemental pay with the fluctuating workweek method.
  • Adds examples to 29 CFR 778.114(b) to illustrate these principles where an employer pays an employee, in addition to a fixed salary (1) a nightshift differential and (2) a productivity bonus.
  • Revises the rule in a non-substantive way to make it easier to read, so employers will be able to better understand the fluctuating workweek method. Revised 29 CFR 778.114(a) lists each of the requirements for using the fluctuating workweek method, and duplicative text is removed from revised 29 CFR 778.114(c).
  • Changes the title of the regulation from “Fixed salary for fluctuating hours” to “Fluctuating Workweek Method of Computing Overtime.”

Example 1: Suppose an employee were paid $491 in fixed weekly salary plus an $8 per hour nightshift premium. In a week in which the employee works 50 hours, including 4 hours for which the employee receives the nightshift premium, the employee’s straight time pay is $523 ($491 salary plus $32 nightshift premium), and the regular rate is $10.46. The employer need only pay an additional $5.23, half time the regular rate, for each of the 10 overtime hours, for a total of $52.30. The payment of the $8 nightshift premium is reflected in this fluctuating workweek method computation. The fluctuating workweek method therefore correctly computes overtime pay owed under the FLSA when an employee receives a fixed salary and hours based premiums that compensate him or her for all hours worked.

For a complete text of the rule proposal visit the DOL website.

Payroll Lecture 105: Form 941: COVID-19 Edition

If you thought the 2020 Form W-4 was “fun” now we have Form 941-COVID-19 edition coming for the second quarter of 2020. With 16 new lines this edition is going to be “challenging” to say the least. My new webinar covers all the COVID-19 changes to the Form 941. Join me on Thurs., May 28th starting at 10 am Pacific. Use code cjyfrqa6 at checkout for a 10% discount for my blog followers.

Register today! Only $149.00 (use coupon code bbtk7fcj at checkout for 10% discount)

Date: Thursday, May 28, 2020

Time: 10 am to 11:30 am Pacific (90-minutes)

This Presentation will cover:

  • What’s New for Q2-Q4 2020
  • Families First Act: Credits for Paid Sick Leave and Paid Family Leave
  • CARES Act: including deferring Employer’s Social Security
  • IRS Form 7200: Purpose for the form and how it applies to you
  • Line by line review of the massive changes of the New Revised Form 941

WHD Issues Final Rule on Qualifying as a “Retail or Service” Establishment

On May 18, 2020, the U.S. Department of Labor’s Wage and Hour Division (WHD) announced a final rule to provide one analysis for all employers when determining whether they qualify as “retail or service” establishments for purposes of an exemption from overtime pay applicable to commission-based employees.

Section 7(i) of the Fair Labor Standards Act (FLSA) provides an exemption from the FLSA’s overtime pay requirement for certain employees of retail or service establishments paid primarily on a commission basis. Today’s rule withdraws two provisions from WHD’s regulations. The first withdrawn provision listed industries that WHD viewed as having “no retail concept” and thus were categorically ineligible to claim the section 7(i) exemption. The second withdrawn provision listed industries that, in WHD’s view, “may be recognized as retail” and thus were potentially eligible for the exemption. As the rule explains, some courts have questioned whether these lists lack any rational basis.

As a result of the withdrawal of these two lists, establishments in industries that had been on the non-retail list may now assert that they have a retail concept, and if they meet the existing definition of retail and other criteria, may qualify to use the exemption. These other criteria include paying a regular rate at least one and a half times the minimum wage and providing commissions that comprise more than half the employee’s compensation for a representative period. Some establishments on the withdrawn non-retail list may have been deterred from availing themselves of the exemption and its compensation flexibilities. If establishments on the withdrawn non-retail list now qualify for the exemption, they have added flexibility regarding commission-based pay arrangements with their workers. For these employers and workers, they could consider whether, for instance, more commission-based pay is sensible.

Establishments in industries that had been on the “may be” retail list may continue to assert that they have a retail concept. Moving forward, WHD will apply the same analysis to all establishments to determine whether they have a retail concept and qualify as retail or service establishments, promoting greater clarity for employers and workers alike.

WHD is issuing this rule without notice and comment, and it will take effect immediately. Notice and comment and delaying the effective date are not required because both lists being withdrawn were part of WHD’s interpretive regulations and were originally issued in 1961 without notice and comment or a delay.

 

 

Subscribe to Payroll 24/7 to get all the latest payroll related news right to your inbox. Only $149 per year.