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Payroll Tax Credits

Any clarification on the Coronavirus Response Act for the employer tax credit, I would like to know do we exempt from the employer share of FICA when we process the payment in payroll?
how do employers receive the credit?
1. Employers will receive tax credits under the Coronavirus Tax Relief.
2. In another section I read the amounts paid under this Act by employer for mandatory sick leave or family leave under the act are exempt from the employer’s share of FICA.


  • The Corona-virus Response Act for the employer tax credit,

  • kiki
    kiki ✭✭

    We can defer Social Security Tax ER portion and have to repay1/2 of it by 12/2021 and remainder by 12/2022.

  • I'm sure most of you know this by now but just in case someone missed it----

    Form 941 has been revised - it added lines in the employment tax computation section (lines 5a (i) and 5a (ii) to compute only the employee share of Social Security - leaving the employer share out of the computation. There is also a worksheet (in the instructions) for calculating the non-refundable and refundable portion of the qualified sick and family leave payments and employee retention credit, as well as lines on the Form 941 for factoring in those credits into the computation of employer tax liability. There is also a line to take into account advance credits received from Form 7200 and a section on other information required related to the credits - such as medical expenses allocated to sick and family leave credits and qualified wages.

  • Against which tax deposit do you take the credit if you're taking it on your weekly deposit? For example, if we have a credit this week of $2500 for FFCRA wages, $255 ER SS, and $36.25 in ER Med, do we take that full credit ($2791.25) against ER SS payment, or do we take it against SS and Med respectively? Where does the credit for wages come out of? I've done so much research, and I just feel like it isn't clear.
    Thank you!

  • Hello Tdeller,
    It is confusing because there are several credits and they are taken in a particular order. In addition, there are options such as the deferral and advance credit. The computations are done on Form 941 after the end of the quarter.

    First on page 1, you compute your total taxes (FIT withholding, FICA, Additional Medicare tax, and employer FICA on unreported tips notice and demand - note that employer share is not computed for qualified sick or family leave wages).

    Next compute the adjustments and compute the total tax after adjustments.
    Now you need to go to Worksheet 1, Form 941, and compute the employer share of Social Security Tax for the quarter.

    From the employer share of Social Security tax for the quarter, subtract the qualified small business credit for increasing research activities, and if there is anything left, subtract the work opportunity tax credit.
    This leaves you with the employer share of Social Security tax remaining after those two non-refundable credits. You then compute the non-refundable and refundable portions of the qualified sick and family leave wages (credits) and the employee retention credits. The employee retention credits are only allowed if the employer has experienced a significant downturn or closure.

    The credits are not limited to the employer share of Social Security tax, that limitation is there because the credit for researching activities and work opportunity credit are limited by the employer share of Social Security taxes. The COVID credits may be applied to all deposit requirements.
    For a quick and dirty estimate each pay period:

    Identify the qualified wages for sick leave and family leave. Be sure to watch the limitations for each employee. The full amount of qualified sick and family leave wages paid qualify for the credit.
    If you are eligible for employee retention credit, identify those qualifying wages for each employee and track those limitations. Remember the credit on these wages is limited to 50% of the qualified wages.
    The required tax deposit amounts for the pay period may be reduced by the amounts of the credits allowable on the sick and family leave wages paid and on the employee retention credit paid during that pay period. The deposit cannot be reduced below zero. Any COVID credit amounts in excess of employer tax liability for the period are refundable credits.

    That is, nonrefundable credits are limited to offsetting the employer share of Social Security taxes while refundable credits offset all tax deposit liability and any excess over that can be refunded.
    However, keep in mind, that any advance credit (Form 7200) received for the quarter will have to be added back to the liability for the quarter on Form 941.

    In the case you mentioned - $2,500 of FFCRA wages and given a total of $10,000 wages paid during the quarter to all employees (including the 2,500 FFCRA wages), the initial tax liability for the week is $1,000 FIT withholding, $930 Social Security (employer and employee shares on non FFCRA wages), $155 Social Security (employee share only on FFCRA wages) and $145 Medicare. Absent the other two nonrefundable credits, the tax deposit liability for the week is $2,230 and you can reduce that to zero by subtracting the $2,500 FFCRA wages from that.

    If the total tax liability is, say, $6,000, the $2,500 for the FFCRA credit would be subtracted and the amount to deposit would be $3,500.

    Since the tax deposit is made on a total liability basis rather than on a specific tax basis, there is no need to apply the credits to specific taxes.

    Or is the question actually about how to record the credit in the business records against specific tax liabilities? For example, allocation of the taxes to EE FIT payable, EE OASDI Payable, ER OASDI Payable, EE HI Payable, and ER HI Payable. Don't bother. For internal bookkeeping, Instead record the credits in a separate account. For example, a new contra liability account called COVID Credits (or a similar account for each credit) could be set up to offset the tax deposit liability. Special wage accounts could also be set up to track qualified sick leave wages, qualified family leave wages, and qualified employee retention wages as well.