Practitioner COVID-19 Payroll Tax Credit Worksheet

Practitioner COVID-19 Payroll Tax Credit Worksheet

Practitioner COVID-19 Payroll Tax Credit Worksheet For reviewing 2020 payroll tax returns Client:

Introduction

This worksheet is for tax professionals to use when reviewing their clients' payroll tax returns to determine whether the client has claimed all COVID-19-related payroll tax credits.

This worksheet is to be used when reviewing payroll tax returns for the 2020 calendar year. Different rules apply for COVID-19-related payroll tax credits for 2021. This worksheet will be updated at a later time for 2021 payroll tax returns.

Step 1 ? Review payroll tax returns for FFCRA credits

Form 941:

Q1

Q2

Q3

Q4 Total

FFCRA sick leave wages on line 5a(i)

n/a

FFCRA family leave wages on line 5a(ii)

n/a

FFCRA credits on line 11b*

n/a

FFCRA credits on line 13c*

n/a

*Sum of lines 11b and 13c must be added back to gross income on the income tax return (see Step 4)

What this means Action to take

If FFCRA wages and credits appear on If FFCRA wages and credits DO

Form 941

NOT appear on Form 941

Your client and their payroll company are aware of the credits and have claimed them

Your decision whether to pursue the issue to determine if additional credits can be claimed by filing amended payroll tax returns (see chart at end of worksheet for FFCRA requirements and eligible credit amounts)

Either: ? Client and payroll company

missed the credits; or ? Client did not pay any

wages eligible for the FFCRA credits You should inquire further to determine whether the credits were missed or whether client did not pay any FFCRA wages (see chart at end of worksheet for FFCRA requirements and eligible credit amounts)

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Practitioner COVID-19 Payroll Tax Credit Worksheet

Step 2 ? Review payroll tax returns for Employee Retention Credit (ERC)

Note: The Employee Retention Credit was originally not available to employers that received PPP loans, but the Taxpayer Certainty and Disaster Tax Relief Act (TCDTRA), passed on December 27, 2020, now allows PPP loan recipients to claim the Employee Retention Credit.

Employers that originally didn't claim the Employee Retention Credit because they received PPP loans can claim all of their 2020 Employee Retention Credits on their fourth quarter payroll tax returns for 2020.

Form 941:

Q1

Q2

Q3

Q4

ERC wages on line 21

n/a

ERC health plan expenses on line 22

n/a

ERC credits on line 11c*

n/a

ERC credits on line 13d*

n/a

*Sum of lines 11c and 13d reduce deductible wages on the income tax return (see Step 4)

Total

What this means Action to take

If ERC wages and credits appear on Form 941

If ERC wages and credits DO NOT appear on Form 941

Your client and their payroll company are aware of the credits and have claimed them

Either: ? Client and payroll company

totally missed the credits; or ? Client did not pay any wages eligible for the ERC

Your decision whether to pursue the issue to determine if additional credits can be claimed by filing amended payroll tax returns (see chart at end of worksheet for ERC requirements)

You should inquire further to determine whether the credits were totally missed or whether client did not pay any ERC wages (see chart at end of worksheet for ERC requirements)

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Practitioner COVID-19 Payroll Tax Credit Worksheet

Step 3 ? Amend payroll tax returns, if necessary

If you determine that additional credits are available, calculate the eligible wages and credits using the charts at the end of this worksheet and coordinate with the client and their payroll provider to amend the necessary payroll tax returns (Forms 941X).

Complete Step 1 and Step 2 again using the charts in Step 3 and the amended payroll tax returns (skip this step if amended payroll tax returns are not required):

Q1

Q2

Q3

Q4 Total

FFCRA sick leave wages on line 5a(i)

n/a

FFCRA family leave wages on line 5a(ii)

n/a

FFCRA credits on line 11b*

n/a

FFCRA credits on line 13c*

n/a

*Sum of lines 11b and 13c must be added back to gross income on the income tax return (see Step 4)

Q1

Q2

Q3

Q4

ERC wages on line 21

n/a

ERC health plan expenses on line 22

n/a

ERC credits on line 11c*

n/a

ERC credits on line 13d*

n/a

*Sum of lines 11c and 13d reduce deductible wages on the income tax return (see Step 4)

Total

Step 4 ? Income tax return reporting

The following income tax return adjustments must be made for the FFCRA credits and the Employee Retention Credits that were claimed on payroll tax returns.

Credit

Federal income tax return

California adjustments

adjustments/comments

(California does not allow these

credits)

FFCRA family ? Gross income must be increased by the ? Back out the gross income

leave and sick

amount of the payroll tax credits

reported on the federal return

leave credits

claimed (report as "other income")

due to the FFCRA credits

(sum of Form 941, lines 11b and 13c);

? No adjustment to deduction for wages;

? No adjustment to ?199A wages

Employee

? Deduction for wages paid must be

? Back out the reduction for wages

Retention

reduced by ERC claimed (sum of Form

paid on the federal return due to

Credit

941, lines 11c and 13d);

the ERC

? No adjustment to gross income;

? No adjustment to ?199A wages*

*The IRS has not provided guidance on this topic. Note, however, that ?199A(b)(4)(A) states that

wages for purposes of the qualified business income deduction are based on wages "paid." It does not

say wages "deducted." This seems to indicate that even though deductible wages are reduced on the

income tax return, the taxpayer can still include all wages paid for purposes of the ?199A deduction.

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Practitioner COVID-19 Payroll Tax Credit Worksheet

FFCRA Paid Sick Leave and Paid Family Leave

Paid Sick Benefits: Up to 80 Hours Maximum

Reason for leave

Amount of benefit

The worker:

? Is subject to a federal, state, or local quarantine or isolation order related to COVID-19;

? Has been advised by a health care provider to self-quarantine due to concerns related to COVID-19; or

? Is experiencing symptoms of COVID-19 and is seeking a medical diagnosis

100% of the employee's regular rate of pay (not less than the applicable minimum wage rate) up to a maximum of $511 per day and $5,110 in aggregate in paid sick leave benefits. Paid sick leave benefits are capped at 80 hours for full-time workers (proportional amount for part-time workers) total

(Small business exemption does not apply)

The worker is:

? Caring for an individual who is subject to governmental quarantine, or an isolation order has been advised by a health care provider to self-quarantine;

? Caring for his or her child or if the child's school or place of care has been closed, or the child care provider is unavailable due to COVID-19 precautions; or

? Experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor

Two-thirds of the regular rate of pay up to a maximum of $200 per day and $2,000 in aggregate in paid sick leave benefits. Paid sick leave capped at 80 hours for full-time workers (proportional amount for part-time workers) total

(Small business exemption applies only if worker is staying home to take care of child due to child care/school closure)

Paid Family Leave Benefits: Up to 10 Weeks Paid Maximum

Reason for leave

Amount of benefit

The worker is:

? Caring for his or her child or if the child's school or place of care has been closed, or the child care provider is unavailable due to COVID-19 precautions

If the employee is staying home to care for his or her child due to school closure or unavailability of child care provider due to COVID precautions, the employee is entitled to an additional 12 weeks of emergency family and medical leave (paid family leave benefits). Two weeks of this may be unpaid, but the remaining 10 weeks must be paid at twothirds of the regular rate of pay up to a maximum of $200 per day and $10,000 in aggregate

(Small business exemption applies)

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Practitioner COVID-19 Payroll Tax Credit Worksheet

Payroll Tax Credits on FFCRA Paid Sick Leave and Family Leave

Eligible employers

Employers with fewer than 500 employees

Date range

Sick leave and family leave paid from April 1, 2020, through December 31, 2020

The credit amount is:

100% of the above-listed benefits paid per employee, increased by:

? Qualified health plan expenses paid by the employer and allocated to the paid sick leave (if the health plan expenses are excluded from the employee's gross income); and

? The employer's 1.45% of Medicare tax paid on such benefits; and

Reduced by:

? Other credits claimed by the employer for the same wages

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