The Families First Coronavirus Response Act (Act) requires private employers with fewer than 500 employees and federal, state, and local government and public agency employers regardless of number of employees to provide paid emergency sick leave and expanded family and medical leave to eligible employees. However, an employer of an employee who is a health care provider or an emergency responder may elect to exclude the employee from this Act. The Act requires paid sick leave be provided to all employees due to the following reasons:
- The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19.
- The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19.
- The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.
- The employee is caring for an individual who is subject to an order described in item 1 or has been advised as described in item 2.
- The employee is caring for their child if the school or place of care for the child has been closed or the childcare provider is unavailable due to COVID-19 precautions.
- The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.
Employers can receive a direct reduction of payroll taxes to offset the costs of providing the following benefits:
- Emergency paid sick leave. Employees are to receive two weeks of paid sick leave at their regular pay rate for self-care (see items 1, 2, and 3 above). Two weeks is defined as up to 80 hours if a full-time employee or, if part-time, an amount equal to the average number of hours worked in a two-week period. Employers may receive a credit of 100% of the employee’s pay (up to $511 per day or $5,110 in total per employee).
- Emergency paid sick leave to care for others. Employees are to receive two weeks (up to 80 hours, prorated for part-time employees) of paid sick leave at 2/3 of their normal pay rate if they are unable to work because of a need to care for others (see items 4, 5, and 6 above). Employers may receive a credit of 2/3 of the employee’s pay (up to $200 per day or $2,000 in total per employee). Employers cannot require employees to utilize paid time off (PTO) before the above two benefits kick in.
- Family and medical leave. Employees are to receive an additional 10 weeks of paid family and medical leave at 2/3 of their normal pay rate if they are unable to work because of a need to care for a child under age 18 whose school is closed or childcare provider is unavailable for reasons related to COVID-19. Employers may receive a credit of 2/3 of the employee’s pay (up to $200 per day or $10,000 in total per employee). As was previously the case, the first two weeks of family and medical leave may be unpaid. Employees can utilize any PTO available to them during these two weeks; however, the employer cannot require the employee to use PTO during the 10 additional weeks provided. Eligible employees for this benefit are all employees having been employed for at least 30 calendar days. Employers with fewer than 50 employees may be exempt from the expanded family and medical leave if it would interfere with their ability to continue to conduct business.
An additional tax credit may be received based upon the cost to maintain health insurance coverage for the eligible employee during the leave period.
The government of the United States, any state or political subdivision therefore, or any agency or instrument of the foregoing are not eligible for the credit.
To allow for the most immediate impact, qualifying employers can retain the federal withholding, social security, and Medicare taxes that would normally be submitted as payroll tax deposits. If the payroll taxes exceed the calculated credit, the balance should be remitted to the IRS as normal. However, if the credit available exceeds the payroll taxes retained, the employer can choose to file a claim for reimbursement. The IRS has committed to disbursing the additional funds as quickly as possible, with a goal of two weeks.
Funds received to offset paid sick and family and medical leave will not be taxable to the employer; however, the offsetting wages paid will not be deductible. In all cases, a good faith effort should be made regarding record keeping.
The Department of Labor is providing a 30-day non-enforcement policy to give employers time to come into compliance with the Act. It is unclear if this time period is effective immediately or as of the delayed effective date mentioned above.
Self-employed individuals who are unable to work for the same reasons listed above are also eligible for a tax credit. Their credit is subject to the lesser of the dollar amounts mentioned above ($511 or $200 per day) or their average daily self-employment income. To receive their credit, they may claim it on their 2020 income tax return or immediately reduce their 2020 quarterly estimated tax payments. Self-employed individuals are required to maintain documentation to establish their eligibility for the credit.
Resource: The Families First Coronavirus Response Act Posters
Any accounting, business, or tax advice contained in this communication, including attachments and links to outside sources, is not intended as a thorough analysis of specific issues, nor a substitute for a formal opinion, nor was it written to be used to avoid tax related penalties.