The U.S. Congress, the U.S. Internal Revenue Service (IRS) and the Treasury Department are continuing to respond to the economic disruption caused by the Novel Coronavirus (COVID-19) with measures intended to provide relief to business and individual taxpayers. First, the U.S. Congress enacted new refundable payroll tax credits for businesses for the cost of paid sick leave and paid family leave. Since these tax credits apply to payroll, not income, tax, a wide range of businesses (including businesses that are not expected to pay income taxes in 2020) are expected to benefit. Employers may retain certain payroll tax deposits in the amount of the tax credits, and the IRS will implement expedited refund procedures, as described below. Second, the IRS postponed until July 15, 2020 the deadline for filing U.S. federal income tax returns and paying certain U.S. federal income and estimated taxes otherwise due April 15, 2020.

New Payroll Tax Credits

On March 18, 2020, the U.S. Senate passed, and President Trump signed into law, the "Families First Coronavirus Response Act" (H.R. 6201 or the Response Act). The Response Act makes emergency supplemental appropriations to address the COVID-19 emergency and enacts new payroll tax credits for certain smaller businesses. Highlights of the new payroll tax credits include the following:

• Credit for Paid Sick Leave—An employer will be allowed a credit against the Old-Age, Survivor and Disability Insurance (OASDI) tax imposed by Section 3111(a) of the U.S. Internal Revenue Code of 1986, as amended (the Code) (commonly referred to as the Social Security tax), for each calendar quarter in an amount equal to 100 percent of the qualified sick leave wages paid per employed individual per day. This amount is generally limited, however, to 10 days in total per individual and capped at (i) $511 per day for an individual who is quarantined or self-quarantined due to COVID-19 or seeking a medical diagnosis for COVID-19 symptoms and (ii) $200 per day for an individual caring for either a quarantined or self-quarantined individual or for a child due to COVID-19 related school or childcare disruptions. The amount of this credit is increased by the amount of tax imposed by Section 3111(b) of the Code (commonly referred to as the Medicare tax) on qualified sick leave wages.
• Credit for Paid Family Leave—An employer will also be allowed a credit against the payroll tax imposed by Section 3111(a) of the Code for each calendar quarter in an amount equal to 100 percent of the qualified family leave wages paid per employed individual per day. This amount is generally capped, however, at a per individual amount of $200 per day and $10,000 in total for all calendar quarters. Qualified family leave wages are generally wages payable to an individual caring for a child due to COVID-19 related school or childcare disruptions. The amount of this credit is increased by the amount of Medicare tax on qualified family leave wages.
• Credits for Self-Employed Individuals—Self-employed individuals are generally entitled to similar credits against self-employment tax to the extent they would have been entitled to paid sick leave or paid family leave had they been employed by an eligible employer. The rules for self-employed individuals are complex, and should be reviewed carefully.
• Retention of Payroll Tax Deposits and Expedited Refunds—An employer is generally entitled to a refund of each credit to the extent it exceeds the employer's payroll tax liability under Section 3111(a) of the Code for all employees for any calendar quarter. On March 20, the IRS announced that eligible employers that pay qualifying sick or family leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and family leave that they paid, rather than deposit such taxes with the IRS. The payroll taxes that are available for retention include withheld U.S. federal income taxes, the employee's share of Social Security and Medicare taxes, and the employer's share of Social Security and Medicare taxes with respect to all employees. If there are insufficient payroll taxes to cover the cost of qualified sick and family leave paid, employers will be able file a request for an expedited refund, which the IRS expects to process in two weeks or less. The details of this new, expedited procedure should be released during the week of March 23.
• Additional Limitations—The credit for paid sick leave and the credit for paid family leave do not apply to certain governmental employers, including the U.S. federal government, the government of any state or political subdivision of a state, or any federal, state, or local agency. The payroll tax credits described above currently are only available to taxpayers until December 31, 2020.

Tax Filing and Payment Deadlines Postponed

On March 13, 2020, President Trump issued an emergency declaration directing the Secretary of the Treasury to provide relief from tax deadlines to Americans adversely affected by the COVID-19 emergency. The IRS outlined the following key aspects of that relief in Notice 2020-18 (the Notice), published March 20, 2020:

• Tax filing and payment deadlines postponed until July 15, 2020—The Notice extends the U.S. federal income tax return filing deadline for tax returns due April 15, 2020 until July 15, 2020. Similarly, the April 15, 2020 due date for U.S. federal income tax and first-quarter estimated tax payments (including, in each case, tax on self-employment income) is postponed until July 15, 2020. These extensions apply automatically to all categories of taxpayers, including individuals, corporations, partnerships, and entities treated as partnerships for U.S. federal income tax purposes.
• No cap on postponed payments—The Notice does not cap the amount of tax that any taxpayer may postpone paying until July 15, 2020. This is a key change from the guidance originally issued by the IRS last week in Notice 2020-17, which the Notice supersedes.
• Applies only to U.S. federal income tax filings and payments—Deadlines for filing any other U.S. federal tax or information returns remain unchanged. The payment deferral does not apply to any other U.S. federal tax payments or deposits, including federal employment taxes. State and local income tax payment deadlines are not automatically extended, although some states, including California, have begun to announce their own extensions, which may have different terms.

In a related news release (IR-2020-58), the IRS confirmed that taxpayers that need additional time to file beyond the July 15 deadline can request filing extensions by filing standard applicable extension forms (generally Form 7004 for businesses and Form 4868 for individuals). The Treasury Department and the IRS are responding quickly to the changing COVID-19 situation and may release additional guidance in the coming weeks, including regarding second-quarter estimated tax payments due June 15, 2020. Under the Notice, any applicable interest and penalties will begin to accrue on July 16, 2020 on deferred tax payments that remain unpaid as of that date.

Joe Mandry contributed to the preparation of this alert.