How contractors are required to meet new sick and family leave requirements under coronavirus law

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Updated Apr 3, 2020

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Though contractors with fewer than 500 employees must provide paid sick and family leave for employees affected by the coronavirus – unless they have fewer than 50 employees and receive an exemption – the stimulus relief package signed March 27 provides some cash-flow help for businesses having to meet this requirement.

(For more details on the new requirements for paid sick and family leave, see our previous story on this law by clicking here.)

The amount contractors would have to pay in sick leave would be reimbursed through payroll tax credits. Associated General Contractors and others had been concerned that the tax-credit reimbursement, which could take up to 12 weeks, would lead to a cash-flow problem for some businesses.

The latest, $2 trillion stimulus law signed March 27 addresses some of those concerns.

First, the Treasury Department can advance tax credits to employers in anticipation of employees taking paid leave. The law would also waive penalties on employers for failing to make deposits for payroll taxes in anticipation of the paid leave, AGC says.

The new law also allows employers and the self-employed to defer the employer share of the Social Security tax they would have to pay for their employees. The first half of the deferred payments would be due December 31, 2021, and the second half would be due December 31, 2022.

Another provision of the new law resurrects a program that contractors often used during the Great Recession, according to AGC. Contractors who suffer net operating losses can “carry back” those losses against taxes paid in the five previous years. The AGC provides the following example:

A company made $10,000 in profits every year for five years. Then it faces a one-year $50,000 loss. It could count the $50,000 loss against the previous five years’ $50,000 gains and get refunded for the taxes it paid. A company can do this for net operating losses not only in tax year 2020 but also in tax years 2018 and 2019.

AGC also reports that the law increases the amount of interest expenses a business can deduct from 30 percent to 50 percent of its earnings before interest, taxes, depreciation and amortization (EBITDA).