Owing Tax on Social Security Not Received

 

I am spending more time talking about social security.

The clients and I are aging. If it does not affect me, it affects them – and that affects me.

Social security has all manners of quirks.

For example, say that one worked for an employer which does not pay into social security. There are many - think teachers, who are covered instead by state plans. It is common enough to mix and match employers over the course of a career, meaning that some work may have been covered by social security and some was not. What does this mean when it comes time to claim benefits?

Well, if you are the employee in question, you are going to learn about the windfall elimination provision (WEP), which is a haircut to one’s social security for this very fact pattern.

What if this instead is your spouse and you are claiming spousal benefits? Well, you are going to learn about the “government pension offset,” which is the same fish but wrapped in different paper.

What if you are disabled?

Kristen Ecret was about to find out.

She worked a registered nurse until 2014, when she suffered an injury and became medically disabled. She started receiving New York workers compensation benefits.

Oh, she also applied for social security benefits in 2015.

In December 2017 (think about it) she heard back from the SSA. She was entitled to benefits, and those benefits were retroactive to 2015.

Should be a nice check.

In January 2018 she received a Form SSA-1099 for 14,392, meaning the SSA was reporting to the IRS that she received benefits of $14,332 during 2017.

But there was a bigger problem.

Kristen had received nothing – zippo, nada, emptitadad – from SSA. The SSA explained that her benefits had been hoovered by something called the “workers’ compensation offset.”

She filed a request for reconsideration of her benefits.

She got some relief.

It’s a year later and she received a Form SSA-1099 for 2018. It reported that she received benefits of $71,918, of which $19,322 was attributable to 2018. The balance – $52,596 – was for retroactive benefits.

Except ….

Only $20,749 had been deposited to her bank account. Another $5,375 was paid to an attorney or withheld as federal income tax. The difference ($45,794) was not paid on account of the workers’ compensation offset.

Something similar happened for 2019.

Let’s stay with 2019.

Instead of using the SSA-1099, Kristen reported taxable social security on her 2019 joint income tax return of $5,202, which is 85% of $6,120, the only benefits she received in cash.

I get it.

The IRS of course caught it, as this is basic computer matching.

The IRS had records of her “receiving” benefits of $55,428.

The difference? Yep: the “workers’ compensation offset.”

There was some chop in the water, as a portion of the benefits received in 2019 were for years 2016 through 2018, and both sides agreed that portion was not taxable. But that left $19,866 which the IRS went after with vigor.

The Court walked us through the life, times and humor of the workers’ compensation offset, including this little hummable ditty:

For purposes of this section, if, by reason of section 224 of the Social Security Act [i.e., 42 U.S.C. § 424a] . . . any social security benefit is reduced by reason of the receipt of a benefit under a workmen’s compensation act, the term ‘social security benefit’ includes that portion of such benefit received under the workmen’s compensation act which equals such reduction."

Maybe the Court will find a way ….

            Section 86(d) compels us to agree with respondent."

The “respondent” is the IRS. No help here from the Court.

Applying the 85% inclusion ratio, we conclude that petitioners for 2019 have taxable Social Security benefits of $16,886, viz, 85% of the $19,866 in benefits that were attributable to 2019. Because petitioners on their 2019 return reported only $5,202 in taxable Social Security benefits, they must include an additional $11,684 of such benefits ($16,886 − $5,202) in their gross income."

Kristen lost.

Oh, the IRS applied an accuracy-related penalty, just to make it perfect.

We know that tax law can be erratic, ungrounded, and nonsensical. But why did Congress years ago change the tax Code to convert nontaxable disability income into taxable social security income? Was there some great loophole here they felt compelled to squash?

Our case this time was Ecret v Commissioner, T.C. Memo 2024-23.

A Day Trader and Wash Losses

 

We have had a difficult time with the tax return of someone who dove into the deep end of the day-trading pool last year. The year-end Fidelity statement reported the trades, but the calculation of gain and losses was way off. The draft return landed on my desk showing a wash loss of about $2.5 million. Problem: the client was trading approximately $250 grand in capital. She would have known if she lost $2.5 million as either she (1) would have had a capital call, (2) used margin, or (3) done a bit of both.

Let’s talk about wash sales.

The rule was created in 1921 because of a too-favorable tax strategy.

Let’s say that you own a stock. You really believe in it and have no intention of parting with it. You get near the end of the year and you are reviewing your to-date capital gains and losses with your advisor. You have $5 thousand in capital gains so far. That stock you like, however, took a dip and would show a $4 thousand loss … if you sold it. The broker hatches a plan.

“This is what we will do” says the broker. We will sell the stock on December 30 and buy it back on January 2. You will be out of the stock for a few days, but it should not move too much. What it will do is allow us to use that $4 thousand loss to offset the $5 thousand gain.”

It is a great plan.

Too great, in fact. Congress caught wind and changed the rules. If you sell a stock at a loss AND buy the same or substantially identical stock either

·      30 days before or

·      30 days after …

… the sale creating the loss, you will have a wash sale. What the tax law does is grab the loss ($4 thousand in our example) and add it to the basis of the stock that you bought during the 30 day before-and-after period. The loss is not permanently lost, but it is delayed.

Mind you, it only kicks-in if you sell at a loss. Sell at a gain and the government will always take your money.

Let’s go through an example:

·      On June 8 you sell 100 shares at a loss of $600.

·      On July 3 you buy 100 shares of the same stock.

You sold at a loss. You replaced the stock within the 61-day period. You have a wash loss. The tax Code will disallow the $600 loss on the June 8 trade and increase your basis in the July 3 trade by $600. The $600 loss did not disappear, but it is waiting until you sell that July 3 position.

Problem: you day trade. You cannot go 48 hours without trading in-and-out of your preferred group of stocks.

You will probably have a lot of wash sales. If you didn’t, you might want to consider quitting your day job and launching a hedge fund.

Problem: do this and you can blow-up the year-end tax statement Fidelity sends you. That is how I have a return on my desk showing $2.5 million of losses when the client had “only” $250 grand in the game.

I want to point something out.

Let’s return to our example and change the dates.

·      You already own 100 shares of a stock

·      On June 8 you buy another 100 shares

·      On July 3 you sell 100 shares at a loss

This too is a wash. Remember: 30 days BEFORE and after. It is a common mistake.

The “substantially identical” stock requirement can be difficult to address in practice. Much of the available guidance comes from Revenue Rulings and case law, leaving room for interpretation. Let’s go through a few examples.

·      You sell and buy 100 shares of Apple. That is easy: wash sale.

·      You sell 100 shares of Apple and buy 100 shares of Microsoft. That is not a wash as the stocks are not the same.

·      You sell 30-year Apple bonds and buy 10-year Apple bonds. This is not a wash, as bonds of different maturities are not considered substantially identical, even if issued by the same company.

·      You sell Goldman Sachs common stock and buy Goldman Sachs preferred. This is not a wash, as a company’s common and preferred stock are not considered substantially identical.

·      You sell 100 shares of American Funds Growth Fund and buy 100 shares of Fidelity Growth Company. The tax law gets murky here. There are all kinds of articles about portfolio overlap and whatnot trying to interpret the “substantially identical” language in the area of mutual funds.  Fortunately, the IRS has not beat the drums over the years when dealing with funds. I, for example, would consider the management team to be a significant factor when buying an actively-managed mutual fund. I would hesitate to consider two actively-managed funds as substantially identical when they are run by different teams. I would consider two passively-managed index funds, by contrast, as substantially identical if they tracked the same index.  

·      You sell 100 shares of iShares S&P 500 ETF and buy the Vanguard S&P 500 ETF.  I view this the same as two index mutual funds tracking the same index: the ETFs are substantially identical.

·      Let’s talk options. Say that you sell 100 shares of a stock and buy a call on the same stock (a call is the option to buy a stock at a set price within a set period of time). The tax Code considers a stock sale followed by the purchase of a call to be substantially identical.

·      Let’s continue with the stock/call combo. What if you reverse the order: sell the call for a loss and then buy the stock? You have a different answer: the IRS does not consider this a wash.

·      Staying with options, let’s say that you sell 100 shares of stock and sell a put on the same stock (a put is the option to sell a stock at a set price within a set period of time). The tax consequence of a put option is not as bright-line as a call option. The IRS looks at whether the put is “likely to be exercised,” generally interpreted as being “in the money.”

Puts can be confusing, so let’s walk through an example. Selling means that somebody pays me money. Somebody does that for the option of requiring me to buy their stock at a set price for a set period. Say they pay me $4 a share for the option of selling to me at $55 a share. Say the stock goes to $49 a share. Their breakeven is $51 a share ($55 minus $4). They can sell to me at net $51 or sell at the market for $49.  Folks, they are selling the stock to me. That put is “in-the-money.”  

Therefore, if I sell a put when it is in-the-money, I very likely have something substantially identical.

There are other rules out there concerning wash sales.

·      You sell the stock and your spouse buys the stock. That will be a wash.

·      You sell a stock in your Fidelity account and buy it in your Vanguard account. That will be a wash.

·      You sell a stock and your IRA buys the stock. All right, that one is not as obvious, but the IRS considers that a wash. I get it: one is taxable and the other is tax-deferred. But the IRS says it is a wash. I am not the one making the rules here.

·      There is a proportional rule. If you sell 100 shares at a loss and buy only 40 shares during the relevant 61-day period, then 40% (40/100) of the total loss will be disallowed as a wash.

Let’s circle back to our day trader. The term “trader” has a specific meaning in the tax Code. You might consider someone a trader because they buy and sell like a madman. Even so, the tax Code has a bias to NOT consider one a trader. There are numerous cases where someone trades on a regular, continuous and substantial basis – maybe keeping an office and perhaps even staff - but the IRS does not consider them a trader. Maybe there is a magic number that will persuade the IRS - 200 trading days a year, $10 million dollars in annual trades, a bazillion individual trades – but no one knows.

There is however one sure way to have the IRS recognize someone as a trader. It is the mark-to-market election. The wash loss rule will not apply, but one will pay tax on all open positions at year-end. Tax nerds refer to this as a “mark,” hence the name of the election.

The mark pretends that you sold everything at the end of the year, whether you actually did or did not. It plays pretend but with your wallet. This tax treatment is different from the general rule, the one where you actually have to sell (or constructively sell) something before the IRS can tax you.

Also, the election is permanent; one can only get out of it with IRS permission.

A word of caution: read up and possibly seek professional advice if you are considering a mark election. This is nonroutine stuff – even for a tax pro. I have been in practice for over 35 years, and I doubt I have seen a mark election a half-dozen times.

FICA Tax On Nonqualified Deferred Compensation

 

One of the accountants brought me what she considered an unusual W-2.

Using accounting slang, Form W-2 box 1 income is the number you include on your income tax return. Box 3 income is the amount on which you paid social security tax.  There often is a difference. A common reason is a 401(k) deferral – you pay social security tax but not income tax on the 401(k) contribution.

She had seen fact pattern that a thousand times. What caught her eye was that the difference between box 1 and box 3 income was much too large to just be a 401(k). 

Enter the world of nonqualified deferred compensation.

What is it?

Let’s analyze the term backwards:

·      It is compensation, meaning that there is (or was) an employment relationship.

·      There is a lag in the payment. It might be that the employee wants the lag; it might be that the employer wants the lag. A common example of the latter is a handcuff: the employee gets a bonus for remaining with the company a while.

·       The arrangement does not meet the requirements of standardized deferred compensation plans, such as a profit-sharing or 401(k) plan. You have one of those and tax Code requires to you include certain things and exclude others. That standardization is what makes the plan “qualified.”

A common type of nonqual (yep, that is what we call it) is a SERP – supplemental executive retirement plan. Get to be a big cheese at a big company (think Proctor & Gamble or FedEx) and you probably have a SERP as part of your compensation package.

I wish I had those problems. Not a big company. Not a big cheese.

Let’s give our mister big cheese a name: Gouda.

Gouda has a nonqual.

The taxation of a nonqual is a bit nonintuitive: the FICA taxation does not necessarily coincide with its income taxation.

Let’s run through an example. Gouda has a SERP. It vests at one point in time- say 5 years from now. It will not however be paid until Gouda retires or otherwise separates from service.

Unless something goes horribly wrong. Gouda does not have income tax until he receives the money. That might be 5 years from now or it might be 20 years.

Makes sense.

The FICA tax is based on a different trigger: when does Gouda have a right to the money?

Think of it like this: when can Gouda sue if the company fails to pay him? That is the moment Gouda “vests” in the SERP. He has a right to the money and – barring the exceptional – he cannot be stripped of this right.

In our example, Gouda vests in 5 years.

Gouda will pay social security and Medicare (that is, FICA) tax in 5 years.

It is what sets up the weird-looking Form W-2. Let’s say the deferred compensation is $100 grand. The accountant is looking at a W-2 where box 3 income is (at least) $100 grand higher than box 1 income (remember: box 1 is income tax and Gouda will not pay income tax until gets the money).

There is even a name for this accounting: the “Special Timing Rule.”

Why does this rule exist?

You know why: the government wants its money - at least some of it.

But if you think about it, the special timing rule can be beneficial to the employee. Say that Gouda is drawing a nice paycheck: $400 grand. The social security wage base for 2020 is $137,700. Gouda is way past paying the full-boat 7.65% FICA tax. He is paying only the Medicare portion of the FICA - which is 1.45%. If the IRS waited until he retired, odds are the Gouda would not be working and would therefore have to pay the full-boat 7.65% (up to the wage limit, whatever that amount is at the time).

Can Gouda get stiffed by the special timing rule?

Oh yes.

Let’s look at the Koopman v United States case.

Mr Koopman retired from United Airlines in 2001. He paid FICA tax (pursuant to the special timing rule) on approximately $415 grand.

In 2002 United Airlines filed for bankruptcy.

It took a few years to shake out, but Mr Koopman finally received approximately $248 grand of what United had promised him.

This being a tax blog, you know there is a tax hook somewhere in there.

Mr Koopman wanted the excess FICA he had paid. He paid FICA on $415 grand but received only $248 grand.

In 2007 Koopman filed a refund claim for that excess FICA.

Does he have a chance?

Mr Koopman lost, but he did not lose because of the general rule or special rule or any of that. He lost for the most basic of tax reasons: one only has 3 years (usually) to amend a return and request a refund. He filed his refund request in 2007 – much more than 3 years after his withholdings in 2001.

Is there something Koopman could have done?

Yes, but he still could not wait until 2007. He would have had to do it by 2004 – the magic three years.

What could he have done?

File a protective refund claim.

I do not believe we have talked before about protective claims. It is a specialized technique, and an accountant can go a career and never file one.

I believe we have a near-future blog topic here. Let me see if I can find a case involving protective claims that you might want to read and I would want to write.

Changes to 2020 Federal Payroll Taxes

There were two bills passed in March that significantly impacted payroll taxes for 2020. The first – Families First Coronavirus Response Act – expanded employee paid leave, with the intent that the cost of the leave be shifted to the government via refundable payroll tax credits. The second – The Coronavirus Aid, Relief and Economic Security Act - allows employers to defer the deposit of (some) payroll taxes, while also providing a payroll tax credit to encourage employers directly affected by the virus (either through government order or decline in business) to retain employees.

Following is a recap to aid as you work through this new minefield. As always, remember that no recap is exhaustive. Please be advised to review the underlying guidance for specific issues and questions.

The President signed the CARES Act on March 27, 2020.

The CARES act brought us the Employee Retention Credit (ERC).

(1)  Eligible employers include tax-exempt organizations but not government agencies.

(2)  Eligible employers have a refundable credit equal to 50% of qualified wages (including allocable health care expenses) paid employees if the employer …

(a)  Fully or partially suspends operations during 2020 due to orders from an appropriate governmental authority due to COVID-19; or

(b)  Experiences a significant decline in gross receipts during a calendar quarter.

a.    The period begins with the first quarter in which gross 2020 receipts are less than 50% of gross receipts for the same quarter in 2019.

b.    The period ends the quarter after the quarter whose gross receipts exceed 80% for the same quarter in 2019.

(3)  Qualified wages mean wages paid after March 12, 2020 and before January 1, 2021.

NOTE: This means that an eligible employer may claim the credit for qualified wages paid as early as March 13, 2020.

(4) Qualified wages include allocable health care expenses and are limited to $10,000 per employee for 2020.

(5) Qualified wages vary significantly depending on the size of the employer.

(a)   If the employer had 100 or fewer full-time equivalents (FTEs) in 2019, then qualified wages include wages paid all employees.

(b)  If the employer had more than 100 FTEs in 2019, then qualified wages mean wages paid an employee not working because of (a) government orders or (b) a significant decline in gross receipts.

(6) The credit is 50% of qualified wages, meaning the maximum credit is $5,000 ($10,000 times 50%).

(7) Technically, the credit is allowed only against the employer share of social security tax (that is 6.2%), but this is misleading. The credit is fully refundable, so it will continue offsetting employee payroll withholdings and employer payroll taxes until the credit exhausted. If there is still a credit remaining, then the remaining credit is refundable to the employer.

EXAMPLE: CTG Command Center pays $10,000 in qualifying wages in quarter 2, 2020. Employee federal income tax, social security and Medicare withholdings are $4,000. The employer social security is $620 ($10,000 times 6.2%), for a required total payroll tax deposit of $4,620. The retention credit is $5,000. The retention credit will offset all the required payroll tax deposits – employee and employer – and result in a $380 refund to CTG Command Center.

(8) The IRS realized that having an employer make payroll tax deposits, only to have those deposits later refunded, is not prudent cash flow management. The IRS will therefore allow an employer to offset otherwise required payroll tax deposits by anticipated payroll tax credits. The amounts otherwise due or credited are to be accounted for with the filing of the quarterly Form 941. If payroll tax credits are expected to exceed payroll tax deposits otherwise required, there is also a procedure to obtain an advance refund (that is, before filing Form 941) from the IRS.

(9) There is an unusual interaction with the CARES deferral of employer payroll taxes:

·      An employer can defer and still receive the employee retention credit, resulting in, in effect, an interest-free loan from the government.

(10) There is no equivalent of the retention credit for self-employeds.

(11) This credit does not play well with the emergency sick or expanded family leave provisions. In short, one cannot use the same wages for more than one credit.

(12) This credit is not available if the employer receives a Paycheck Protection loan.

 The CARES Act also brought us the deferral of employer social security taxes.

(1) An employer’s payroll tax liability has two parts: social security tax at 6.2% and Medicare tax at 1.45%. The deferral is solely for the employer share of social security taxes (that is, 6.2%).

(2) Unlike the ERC, the deferral applies to deposits (rather than wages paid) otherwise required beginning March 27, 2020 and through December 31, 2020.

COMMENT:  Therefore, payroll taxes accrued before March 27, 2020 would qualify as long as the payroll tax deposit was due on or after March 27, 2020.

(3) All employers are eligible. Unlike the ERC, there is no employer size limitations.

(4) Unlike the ERC, there is no requirement that the employer be affected by COVID-19.

(5) The deferral is as follows:

(a)  50% of taxes deferred are due December 31, 2021

(b)  The remaining 50% is due December 31, 2022

(6) The deferral also applies to self-employeds. The amount deferred is 6.2% of the total 15.3% self-employment tax rate. The is no deferral once the self-employed exceeds the maximum social security wage base.

(7) There is an unusual interaction with the Families First emergency sick and expanded family leave credits.

·      An employer can defer and still receive the emergency sick and expanded family leave credits, resulting in, in effect, an interest-free loan from the government.

(8) There is an unusual interaction with the employee retention credit (ERC).

·      An employer can defer and still receive the employee retention credit, resulting in, in effect, an interest-free loan from the government.

(9) There is an unusual interaction with a Paycheck Protection loan.

·      No further deferrals are allowed after an employer receives notice of Paycheck Protection Loan forgiveness.

·      However, deferrals up to that date remain eligible for deferral and are due December 31, 2021 and 2022.

(10) Note that the deferral affects payroll taxes due on or after March 27, 2020, meaning that one would expect the deferral to be accounted for on the first quarter employer Form 941.

The IRS has clarified that the credit for this stub period will NOT be accounted for on the first quarter Form 941. Rather they will be added to any credits arising during the quarter two and reported on the second quarter Form 941.

The President signed the Families First Coronavirus Response Act on March 18, 2020, introducing two new (and temporary) paid-leave benefits.

Emergency Sick Leave

(1)  Applies to businesses and tax-exempt organizations with fewer than 500 employees 

(2)  Applies immediately to employees of the above employers

(3)  The tax credit is based on qualifying leave provided employees between April 1, 2020 and December 31, 2020.

·      Note that emergency sick leave wages paid in 2021 will qualify if paid for leave taken between April 1 and December 31,2020. 

(4)  Full-time employees can receive up to 80 hours of sick leave. Part-time employees can receive leave based on the average number of hours worked over a two-week period of time.  

(5)  If …

a.     The employee is subject to a federal, state or local quarantine or isolation order related to COVID-19;

b.    The employee has been directed by a healthcare provider to self-quarantine due to concerns related to COVID-19;

c.     The employee is seeking to obtain medical diagnosis when experiencing symptoms of COVID-19

… then the maximum (creditable) paid leave is the employee’s regular rate of pay, up to $511 per day and limited to $5,110 per employee.

(6)  If the employee takes time-off …

a.     To care for a family member who is subject to a federal, state or local quarantine or isolation order related to COVID-19;

b.    To care for a child (under 18 years of age) whose school has been closed or paid childcare provider is unavailable due to COVID-19; or

c.     Because the employee is experiencing any other substantially similar conditions as specified by the Secretary of Health and Human Services

… then the maximum (creditable) paid leave is 2/3 of the employee’s regular rate of pay, up to $200 per day and limited to $2,000 per employee.

(7)  For both (5) and (6), the employer is allowed to increase the credit amount by the allocable cost of the employee’s health insurance coverage.

(8)  Employers are still required to withhold employee federal income taxes and the employee’s share of Social Security and Medicare taxes. 

·      The intent is that this will be covered by the $511/$200 per day allowance.

(9)  Wages paid under the emergency sick leave provision ….

a.     Are NOT be subject to employer social security (6.2%), and

b.    ARE subject to employer Medicare (1.45%)

                                                      i.     However, this employer Medicare requirement is misleading because the credit will be increased by the amount of

1.    The employer Medicare tax, and

2.    The allocable cost of health insurance coverage

EXAMPLE: CTG Command Center pays one employee $200 per day for 10 days. It also pays $100 in health care costs. Employee withholdings are $300 for federal income tax, $124 for social security and $29 for Medicare – a total of $453.Net pay is therefore $1,547 ($2,000 – $453) and total compensation (including health care and employer Medicare) is $2,129. CTG Command Center will receive credit on its payroll tax return for $2,000 + $100 (allocable health care) + $29 (employer Medicare) = $2,129. This means that the cost of the employee (excluding unemployment insurance and workers compensation) has been shifted from CTG Command to the federal government for the covered period.  

(10)        The credit can be offset against all employee withholdings and employer payroll taxes.

·      Any excess is refundable to the employer.

(11)       Any credits utilized will constitute taxable income to the employer.

·      Offsetting the employer payroll tax expense on wages paid emergency leave employees.

(12)       There is a comparable provision for self-employeds

a.     However, the “average daily self-employment income” will not be calculable until year-end, as it refers to 2020 net earnings from self-employment divided by 260 days.

EXAMPLE. Rocket Man is self-employed. He earned $185,000 for 2020, and he spent 10 days taking care of his mom during the crisis. His daily self-employment income is $712 ($185,000 divided by 260). That however exceeds $200, so his allowable paid sick leave is $2,000. His 2020 net earnings from self-employment are reduced by $2,000. He is also allowed to reduce his otherwise-required quarterly estimated tax payments accordingly. 

(13)       There is an unusual interaction with the emergency sick leave credit and the employer payroll tax deferral.

·      An employer can defer and still receive the emergency sick leave credit, resulting, in effect, an interest-free loan from the government.

(14) This credit does not play well with the employee retention credit. In short, one cannot use the same wages for more than one credit.

Expanded Family Leave

(1)  Applies to businesses and tax-exempt organizations with fewer than 500 employees 

(2)  This is a narrow expansion of FMLA to include

… employees unable to perform services (including telework) because of need to care for a child whose school or place of care is closed or whose childcare provider is unavailable due to COVID-19. 

(3)  The employee must have worked for the employer for at least 30 day to qualify.

(4)  The credit is based on qualifying leave provided employees between April 1, 2020 and December 31, 2020

·      Note that emergency sick leave wages paid in 2021 will qualify if paid for leave taken between April 1 and December 31,2020. 

(5)  The provision allows up to 12 weeks of employer-provided protected leave, 10 of which is creditable to the employer.

(6) The maximum (creditable) emergency family leave is the employee’s regular rate of pay, up to $200 per day and limited to $10,000 per employee.

(7) The employer is allowed to increase the credit amount by the allocable cost of the employee’s health insurance coverage.

(8)  Employers are still required to withhold employee federal income taxes and the employee’s share of Social Security and Medicare taxes.

·      The intention is that this will be covered by the $200 per day allowance.

(9)  Wages paid under the expanded family leave provision ….

a.     Are NOT be subject to employer social security (6.2%), and

b.    ARE subject to employer Medicare (1.45%)

                                                      i.     However, this employer Medicare requirement is misleading because the credit will be increased by the amount of

1.    The employer Medicare tax, and

2.    The allocable cost of health insurance coverage

(10)       The credit can be offset against all employee withholdings and employer payroll taxes.

·      Any excess is refundable to the employer.

(11)       Any credits utilized will constitute taxable income to the employer.

·      Offsetting the employer payroll tax expense on wages paid emergency leave employees.

(12)       The example given above for emergency sick leave also covers expanded family leave.

(13)       The discussion about self-employeds given above also covers expanded family leave.

(14)       There is an unusual interaction with the expanded family leave credit and the employer payroll tax deferral.

·      An employer can defer and still receive the expanded family leave credit, resulting in, in effect, an interest-free loan from the government.

(15)       This credit does not play well with the employee retention credit. In short, one cannot use the same wages for more than one credit.

(16)       The FMLA “restoration to position” provision under FMLA does not apply to employers with fewer than 25 employees and meeting certain other requirements.