COVID-19 legislation impacts plan sponsors, employee benefit plans and plan participants

by | Mar 19, 2020 | Articles, COVID-19, Employee Benefits and Executive Compensation, Insights

The below information is current as of the publication date listed. Because COVID-19 response measures on all fronts are continually evolving, clients should stay alert to new developments and consult with counsel on any critical questions.

IRS issues Notice 2020-15

In Notice 2020-15 (the Notice), the IRS removes certain barriers for COVID-19 testing and treatment under the rules for health savings accounts (HSAs) and high-deductible health plans (HDHPs).

Generally, a HDHP is a health plan that meets certain requirements, including minimum deductible and maximum out-of-pocket expenses. Except for certain preventative care expenses, a HDHP is not permitted to provide benefits without cost-sharing until the plan’s deductible is met. Individuals enrolled in HDHPs are permitted to make (or receive) tax-favored contributions to an HSA so long as that individual does not have disqualifying coverage. The Notice responds to employer uncertainty regarding a health plan’s HSA compatibility where the HDHP provides testing for COVID-19 without cost-sharing before the minimum deductible is met.

The Notice applies only to HDHPs and HSAs. The IRS reminds readers with questions about any other type of health plan to contact their health plans directly. Plan sponsors should be prepared for participant inquiries regarding COVID-19 coverage under existing health plans.

Tax credits intended to assist employers with additional benefit costs

The Families First Coronavirus Response Act (FFCRA) signed by President Trump on March 18, 2020 contains leave provisions applicable to private employers with fewer than 500 employees, as well as some governmental employers. The FFCRA provides tax credits to employers in an attempt to assist them with the expanded leave benefit costs. Below is a summary of the tax credits available.

Families First Coronavirus Act signed by President Trump, employers to comply by April 2

Credit Against Employer’s Share of Social Security Taxes. The FFCRA provides tax credits to employers to assist with the expanded sick leave costs. The credit is calculated quarterly by adding the total amount of qualified sick leave wages paid (in the first two weeks) and qualified family leave wages paid (in the following 10 weeks) during the quarter. The total quarterly leave wages paid is credited against the employer’s social security tax (at 6.2%) obligation due for that same quarter. Any leave amounts paid that exceed the employer-portion of the social security taxes will be refunded to the employer as an overpayment for the relevant period. For purposes of computing the amount of the credit, there are two relevant periods:

  1. First two weeks (this credit relates to qualified sick leave wages paid): The credit amount depends on whether the employee is sick or is caring for a sick family member or providing childcare to the employee’s child:
    • Sick Leave Credit: The credit is the lesser of the daily wage or $511 per employee, per day, for 10 days.
    • Family Leave Credit: The credit is the lesser of the daily wage or $200 per employee, per day, for 10 days.
  1.  Next 10 weeks (this credit relates to qualified family leave wages paid): The credit is the lesser of the daily wage or $200 per employee, per day, with the credit capped at $10,000 per employee for a given calendar quarter.

Tax Credits for Self-Employed. Self-employed individuals receive refundable tax credits against the self-employment tax that are similar to those allowed for employers. The sick leave credit is based on a self-employed person’s “qualified sick leave equivalent amount.” That amount is equal to (1) up to 10 days during the year that the person can’t work for a reason that would entitle them to coronavirus-related sick leave if he or she were an employee, (2) multiplied by the lesser of:

  • $511 per day for people who are sick or quarantined, or $200 per day for people caring for another person or on leave because of an HHS-specified condition; or
  • 100% of a sick or quarantined person’s average daily self-employment income for the year, or 67% of the average daily self-employment income for a person caring for another person or on leave because of an HHS-specified condition.

A self-employment tax credit is also be available for 100% of a person’s “qualified family leave equivalent amount.” That amount is equal to (1) up to 50 days during the year that the person can’t work for a reason that would entitle them to coronavirus-related family leave if he or she were an employee, (2) multiplied by the lesser of:

  • $200; or
  • 67% of the person’s average daily self-employment income for the year.

Qualified Health Plan Credit. The FFCRA provides for a credit to employers for certain qualified health plan expenses that are allocable to such qualified sick leave wages or qualified family leave wages.

Saxton & Stump attorney Sarah Ivy is available to further discuss IRS Notice 2020-15 and the FFCRA and how our Employee Benefits and Executive Compensation Group can help you determine how to calculate the tax credits or how the new legislation impacts your plan sponsors, employee benefit plans and plan participants.

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