A. In order to calculate your credit you will need to include the following items:
- Number of days each employee received paid sick leave
- 100% of qualified EPSL and EPFML wages paid
- Employer share of Medicare tax or 1.45%
- Qualified Health Expenses
Please note, you are not subject to the employer portion of Social Security Tax for these wages, therefore no credit can be taken.
Q. Do I include the employee contribution when determining the Qualified Health Plan Expenses?
A. An employer can include the employee portion if your employees have pre-tax contributions, these would be included in the employer cost. If employee contributions are done on a post-tax basis, you will exclude the employee contributions.
Q: What costs are included in Qualified Health Plan Expenses?You can include all medical, dental, vision, healthcare FSA and HRA expenses, (including pre-tax contributions). HSA employer and employee expenses are NOT to be included. Each of these will need to be allocated separately as explained in the I.R.S. Frequently Asked Questions 32.
A: An employer may use any reasonable method to allocate plan expenses including:
- Premium amount paid to the insurance carrier for the employee during the paid leave for each fully insured coverage. For self-funded plans, including HRA’s, the premium equivalent rate used in determining COBRA premium would be used and pro-rated for the paid leave period; or
- The average premium rate for all employees; or
- a substantially similar method that takes into account the average premium rate determined separately for employees with self-only and other than self-only coverage.
Q: How do I calculate the daily cost of health plan expenses:
A: To determine the daily cost under each of the above methods you would annualize the cost of the benefit and divide by the average number of days worked per year. If you are using the average rate for all employees, you would first calculate the annual cost per employee by taking the total annual cost for that benefit and divide it by the number employees enrolled before calculating the daily cost.
Q: What is the total amount of credit that I can claim for an employee?
A: The credit you may claim is 100% of the qualified paid allowed under EPSL and EPFML, employer share of Medicare and the qualified health plan expenses for each day the employee is on qualified paid leave.
For more detailed information please refer to the IRS FAQs at: https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs#sick_leave
If you have any questions or would like additional information, please contact your Liberty Advisor.
Disclaimer: We share this information with our clients and friends for general informational purposes only. It should not be construed as, nor is it intended to provide, legal or accounting advice. If you have questions regarding specific issues and application of these rules to your plans, you should consult your company’s legal or tax advisors.