Calculate Covid-19 Credits
The following link is to the IRS
Internal Revenue Service webpage contains COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQ that you may find helpful.
Along with the earning types, one of the other big changes we are working on is changes to our tax engine to take the amounts paid through earning types and to provide tax credits for them; very similar to how COBRA credits work.
The system will look at the applicable earning types, sum up the amount paid towards that earning type, and use that amount to add some credits to the tax liability area so that the deposits are reduced by those credit amounts.
The Process
First you must add the new FFCRA earning types to your company. See: Add a New Earning Type to learn how to do so and Types of Earnings to learn more about the new earning types.
Then you must set up the Job:
In Millennium® there is a specific Job (System > Operations > Job Queue) called GenTaxCredit that existed previously and runs with every payroll. It was primarily setup for COBRA, but we've modified it to also look for these new earning type tax credits and then apply them.
Once the Job completes successfully you may see the calculations for the credits in the Summary – or the progress log from that Job. We made it as descriptive as possible in order to show how the system is coming up with the numbers and where the information is coming from. The Job goes through the new earning types and will take the amounts paid (up to the annual limit, and we only apply the annual limit, not the per day limit) and will post the corresponding credits.
How the calculation is generated:
The system starts by looking at “recorded payments” – it looks at the four earning types and the wages paid to employees using those earning types for the year. This is the total paid to an employee using earning codes with the new types.
Parent/ Child Companies: when the system is looking at the wages, it does look at parent/child logic if you’re using a parent/child set and the parent is set for aggregate filings. When the system looks at the total wages of those earnings for the employees, it's only working in one company but it will look in the other companies of the parent/child set for that employee, add the amounts in those companies to your current company so that it can make sure that when it applies the limits, it's applying them correctly. It doesn’t give them additional credit, but it will be using that information when it goes to figure out the limits. You can see this at the top of the Summary log, as the system is going through each of the earning types.
Once that is completed, the system applies the limits. Different earning types have different limits. The system then reduces the amount it's recorded – or the amount that we’re using for our calculation – based on that limit. So if the employee was paid $20,000 on a code that had a $10,000 limit, the system is only going to look at the $10,000 portion of the $20,000, when it comes time to calculate the credits. So if when we apply the limits we have a higher amount than the limit allows, we reduce the amount.
| Earning Type | Purpose | Taxability | W2 Box | Limits | WC Pay Type (Hartford) |
|---|---|---|---|---|---|
| CRA Sick Leave | Families First Coronavirus Response Act Sick Leave | Exempted from employer social security. |
Box 14 CRASIC |
511 / day up to 5110 YTD | SICK |
| CRA Dep Care | Families First Coronavirus Response Act Dependent Care Sick Leave | Exempted from employer social security. |
Box 14 CRADEP |
200/ day up to 2000 YTD | SICK |
| CRA Child Care | Families First Coronavirus Response Act Child Care Lave | Exempted from employer social security. |
Box 14 CRACHI |
200/ day up to 10000 YTD | SICK |
| Memo CRA Ins Care | Families First Coronavirus Response Act Insurance Credit | n/a | Box 14 | Aggregate limit per employee. | |
| ARPA Sick Leave | American Rescue Plan Act Sick Leave | Fully Taxable. | TBD | 511 / day up to 5110 YTD | SICK |
| ARPA Fam Leave | American Rescue Plan Act Family Leave | Fully Taxable. | TBD | 200/ day up to 12000 YTD | SICK |
| ARPA Dep Care | American Rescue Plan Act Dependent Care Sick Leave | Fully Taxable. | TBD | 200/ day up to 2000 YTD | SICK |
| Memo ARPA InsS | ARPA Sick Leave Health Insurance Exp | n/a | TBD | Aggregate limit per employee. | |
| Memo ARPA InsF | ARPA Family Leave Health Insurance Exp | n/a | TBD | Aggregate limit per employee. | |
| Memo ARPA COBRA | American Rescue Plan Act COBRA Premiums | n/a | TBD | Aggregate limit per employee. |
As you can see in the screenshot the first three lines for the check date, quarter, and the year is how much the system recorded in payments, and the subsequent three lines is the reduced amounts based on state limits.
The system then adds up the total across all employees across all four codes to determine the max credit. It then goes through and looks at any recorded credits, which are labeled as the C records on the Tax Liability page. It sums all of that up and subtracts the original amount it recorded, to give us the total available credit*. Then the system looks at that available credit and uses that to reduce the taxes and to post credits for this payroll. If credit is less than tax liabilities (for FITW related taxes) we take the full credit, if more we take an amount up to the liabilities. It is possible for credits to be carried over to the next quarter.
Once the Job completes, the tax credits records are shown in the Tax Liability table. These credits will be prorated over all FITW related tax codes. Under normal processing, we have the L (liability) and the D (deposit) records, we also have the ability to show the C (credit) records – used for the COBRA credits, and certain other credits -- and what the system will do when it is generating a tax deposit – it looks at the outstanding liabilities for the quarter and to get that it sums up all the liabilities, subtracts out all of the deposits, and also subtracts out all of the credits to figure out how much the current deposit should be. So by putting in these C records, it will reduce the amount of the deposit. These credits will be labeled with the FFCRA credit type.
Manually Record Credits
You can manually create a liability and deposit. We've updated that screen in Millennium® since you can also post a credit for the FFCRA and ARPA credit, you can manually post a record so that if you get to the end of the quarter and you're trying to bring things in balance for doing 941s in case credits weren't recorded properly through payroll, you can go through and post that information after the fact and put those credits in so that will be calculated.
Turn Credit Service On or Off
Users do have the ability to turn the tax credit functionality on and off. You can do so on the Company Services > Payroll service > Payroll Service Properties. This is case you want to track these earning types but don't want the system to generate the tax credit and don't want any of the automated tax credit stuff to happen in the background. The system will still track the earning types, but it won't post any credits. The "Suppress Automatically Generated Tax Credits" checks box in the Payroll Service Properties dialog will allow you to turn the functionality off. If you select this option, tax credits will no longer be automatically calculated during processing.
If you do want to use this functionality, double check that this option isn't selected.
