COVID-19 Tax Credits Automation Overview

This article will explain reporting and process enhancements Namely has implemented to expedite and track tax refunds your organization is entitled to from COVID-19 legislative relief.

 

OVERVIEW

If your organization leverages Employee Retention Tax Credits or pays employees Paid Family Medical and Sick Leave provided by the Families First Coronavirus Response Act, you're eligible for a credit or reduction in federal taxes owed.

We previously issued refunds in seven business days, but refunds will now be available immediately as you process payroll if the total COVID-19 relief wage credit is less than your Federal tax liability. We've also made some enhancements to Pay Cycle Reports that will empower you to track how relief wage credits impact your payroll liability, so you can better understand the refund process and timeline.

The following COVID-19 Pay Type Codes are eligible for refunds:

  • Federal Paid Family Leave

  • Federal Paid Medical Leave - Tier 1

  • Federal Paid Medical Leave - Tier 2

  • ARPA Federal Paid Family Leave

  • ARPA Federal Paid Medical Leave - Tier 1

  • ARPA Federal Paid Medical Leave - Tier 2

  • Employee Retention Credit

  • Employee Retention Credit Q1 2021

  • Employee Retention Credit Q2 2021

  • Employee Retention Credit Q3 2021

The following Federal Taxes are included in our refund calculations:

  • Federal Income Tax

  • Employee Social Security

  • Employer Social Security

  • Employee Medicare

  • Employer Medicare

  • Employee Additional Medicare

Please note that the COVID-19 related credit for qualified sick and family leave wages is limited to leave taken after March 31, 2020, and before October 1, 2021.

Additionally, the below two credits have expired

  • Qualified sick and family leave wages as enacted under the Families First Coronavirus Response Act (FFCRA) and amended and extended by the COVID-related Tax Relief Act of 2020 for leave taken after March 31, 2020, and before April 1, 2021.

  • Qualified sick and family leave wages under sections Dec 16, 2021, 3131, 3132, and 3133 of the Internal Revenue Code, as enacted under the American Rescue Plan Act of 2021 (ARP), for leave taken after March 31, 2021, and before October 1, 2021.

For more information, see (Circular E), Employer's Tax Guide from the IRS.

STAY UP TO DATE:

Always stay up to date with COVID-19: Consolidated Appropriations Act Updates for 2021, American Rescue Plan Act: Federal Paid Family Leave, and American Rescue Plan Act: Federal Paid Medical Leave.

 

REFUND ELIGIBILITY TIMELINE

The total COVID-19 relief wages credits paid, compared to your Federal Tax Liability will determine the timing of your refund.

  • Case 1: If total relief wage credits are less than the sum of your Federal Tax Liability, then Namely will process your refund immediately, by reducing the amount of Federal Tax Liability that you owe for the pay cycle by the total relief wage credits.

  • Case 2*: If total relief wage credits paid are greater than the sum of your Federal Tax Liability, then no refund will be processed in the pay cycle. We will process refunds on a rolling basis when funds are available for your organization.

*Example: If you processed payroll with $25,000 in COVID-19 relief wage credits and $20,000 in Federal Taxes, you are owed a $25,000 refund. However, Namely only has $20,000 in funds available for a refund. Namely will not release the refund until any future payroll liability supplies the additional $5,000 needed to reach the full credit of $25,000. Once the full Federal Tax Liability becomes greater than all the total relief wage credits, the Federal Tax Liability credit will be released in 5-7 business days after the last payroll check date.
 

IRS Form 7200 

*Note (updated 5/6/21): the IRS has advised that it will be issuing an updated version of Form 7200 in Q2 2021; please do not submit any previously downloaded versions of Form 7200, as the IRS will not accept them. We will update the link below once the IRS has provided the new form.*

If your COVID-19 relief wage credits regularly exceed your federal tax liability, we recommend completing and sending Form 7200 (link to be added once IRS releases new version- see the note above) to the IRS and Namely each time you run payroll. The IRS has funds on hand to issue your refunds directly for the pay cycle credit your organization has earned. Namely can only issue refunds as the funds become available on a rolling basis.

You do not need to wait until the end of the quarter to remit Form 7200 - it can be sent to the IRS and Namely after each pay period.

*Namely will need a copy of the Form 7200 for each pay period. If you fail to send a completed copy of Form 7200 to Namely, you will be refunded twice and will owe the amount of the second refund, plus penalties and interest, back to the IRS. Please submit a case in the Help Community with a copy of the completed Form 7200, each time you process the form.
 

PAY CYCLE AND REPORTING ENHANCEMENTS

We've added some line items to Step 3 of payroll to better track how COVID-19 relief wage credits impact your payroll liability, and also make note of deferred tax amounts for any jurisdictions you've opted into a deferred payment schedule.

The following fields have been added under Payroll Taxes:

  • Under Payroll Taxes: Collected FUTA, state & local taxes

  • Under Payroll Taxes: Uncollected FUTA, state & local taxes

  • Under Deductions & Fees: COVID-19 Pay Credit - which is the sum of COVID-19 wage credits paid.

These fields have been added to the following Pay Cycle Reports (from May 8, 2020 and onward):

  • Cash Requirement Report

  • Payroll Summary

 

FREQUENTLY ASKED QUESTIONS

If my COVID-19 relief wage credits are lower than my Federal Tax Liability in a pay cycle, when will I receive a refund? 

If the total relief wage credit is less than the sum of your Federal Tax Liability, then Namely will process a refund right away, by reducing the amount of Federal Liability that you owe for that pay cycle by the amount of paid relief wage credits.

If my COVID-19 relief wage credits are higher than my Federal Tax Liability in a pay cycle, when will I receive a refund? 

If the total relief wage credit is greater than the sum of your Federal Tax Liability, then no refund will be processed within the pay cycle. Namely will process refunds on a rolling basis depending on when funds become available from your organization.

Will these fields appear on reports for pay cycles that have already been processed?

No - these fields will only appear on reports for payrolls that have been processed from May 8, 2020, and onward.

Does this impact employee net wages?

No - employees will not notice a difference in their net wages as a result of these credits.

Until when are organizations eligible to receive these refunds?

Refunds can be distributed until December 31, 2020, when these pay type codes can no longer be used.

Are other earnings eligible for a refund?

No - only the following pay type codes are eligible for a refund:

  • Federal Paid Family Leave

  • Federal Paid Medical Leave - Tier 1

  • Federal Paid Medical Leave - Tier 2

  • ARPA Federal Paid Family Leave

  • ARPA Federal Paid Medical Leave - Tier 1

  • ARPA Federal Paid Medical Leave - Tier 2

  • Employee Retention Credit

  • Employee Retention Credit Q1 2021

  • Employee Retention Credit Q2 2021

  • Employee Retention Credit Q3 2021

 

I want to be able to receive my refund as soon as possible, even though my COVID wage credits are often higher than my Federal Tax Liability. What should I do?

If you fall into this bucket, we recommend processing Form 7200 (link to be added once IRS releases new version- see the note above under "IRS Form 7200") for each relevant pay period. This will expedite the refund process as the IRS has the funds on hand to issue refunds for the full credit amount earned, rather than waiting for funds to become available from Namely.

 

If I use Form 7200, from whom will I receive my refund?

Your refund will come from the IRS, not Namely.
 

How often can I send Form 7200 for a refund?

This form can be sent to the IRS each pay period if the IRS has made the current quarter form available for use.
 

What happens if I fill out Form 7200, but I forget to send the form to Namely?

If you fail to send a completed copy of Form 7200 to Namely, you will be refunded twice and will owe the amount of the second refund, plus penalties and interest, back to the IRS.