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Law360 (May 7, 2020, 7:46 PM EDT) -- The U.S. Department of the Treasury will allow employers paying for workers' health insurance that cannot pay wages during the novel coronavirus pandemic to qualify for a tax credit to help them meet payroll, according to a Thursday letter.
Treasury will revise initial guidance that disqualifies employers paying for their workers' health benefits but not providing wages from claiming the employer-based worker retention credit, said Frederick W. Vaughan, Treasury's principal deputy assistant secretary in the department's Office of Legislative Affairs.
Vaughan sent the response to Senate Finance Committee Chair Chuck Grassley, R-Iowa, who made the letter public. Vaughan also sent the response to the Senate panel's ranking member, Sen. Ron Wyden, D-Ore., and House Ways and Means Committee Chair Richard Neal, D-Mass.
The credit, equal to up to 50% of employee wages, is available to businesses that are partly or completely prohibited from operating during the shutdowns caused by the coronavirus pandemic, but Treasury recently determined that employers still paying for health benefits, but not wages, could use those expenses to qualify for the credit, the lawmakers said.
Grassley said he expected the changes to the initial guidance to help businesses shuttered by the novel coronavirus outbreak.
"This decision will encourage employers to help employees keep their health insurance while temporarily furloughed due to the shutdown," Grassley said.
Grassley, Wyden and Neal wrote to Treasury Secretary Steve Mnuchin on Monday seeking the change to the employer-based tax credit. The tax break was included in the Coronavirus Aid, Relief and Economic Security Act
, which President Donald Trump signed into law in March.In a separate letter, Vaughan also told Grassley, Neal and Wyden that the changes they requested are under consideration to rules barring the deduction of business expenses paid for by employers using Paycheck Protection Program loan funds.
The lawmakers sent a joint letter to Mnuchin Tuesday, arguing that the Internal Revenue Service's Notice 2020-32
was contrary to lawmakers' intent in exempting loan forgiveness from income. In the IRS notice, the agency concluded that businesses may not take deductions for qualified expenses covered by PPP loans, including wages, rent, mortgage interest, employees' health care benefits and utilities.On Wednesday, Wyden and Grassley introduced bipartisan legislation to permit businesses that have received loans authorized by the CARES Act to deduct covered expenses.
--Additional reporting by Alan K. Ota and Stephen Cooper. Editing by Vincent Sherry.
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