President Trump signed the Families First Coronavirus Response Act (H.R. 6201) on March 18, 2020. It becomes effective on April 1, 2020.
The Act contains eight Divisions. This memorandum will address Division G – Tax Credits for Paid Sick and Paid Family Leave Medical Act. Other memoranda address other Divisions of the Act.
On March 20, 2020, the Department of Labor issued a news release that provides details about the tax credits available to employers. Additional guidance is expected this week.
Tax Credits for Paid Sick and Paid Family and Medical Leave
Emergency Paid Sick Leave Credit. Employer may receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to a maximum of $511 per day and $5,110 in the aggregate, for a total of 10 days for an employee who is unable to work because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis.
An employer may claim a credit for two-thirds of the employee’s regular rate of pay, up to a maximum of $200 per day and $2,000 in the aggregate, for up to 10 days for an employee who is caring for someone with Coronavirus, or is caring for a child because the child’s school or child care facility is closed, or the child care provider is unavailable due to the Coronavirus. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
Child Care Credit Under FMLA Expansion. An employer may receive a refundable child care leave credit for an employee who is unable to work because of a need to care for a child whose school or child-care facility is closed or whose child care provider is unavailable due to the Coronavirus. The credit is equal to two-thirds of the employee’s regular pay, capped at a maximum of $200 per day or $10,000 in the aggregate. A maximum of 10 weeks of qualifying leave can be counted towards the child-care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
Process to Receive the Credit. When employers pay their employees, they are required to withhold from their employees’ paychecks federal income taxes and the employees’ share of Social Security and Medicare taxes. The employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns with the IRS.
Under guidance that will be released next week, an employer who pays qualifying sick or child-care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child-care leave that they paid, rather than deposit them with the IRS. The payroll taxes that may be retained include withheld federal income taxes, the employee share of Social Security and Medicare taxes and the employer share of Social Security and Medicare taxes with respect to all employees.
If there are not sufficient payroll taxes to cover the cost of Emergency Paid Sick Leave or paid child care leave under the FMLA Expansion, the employer will be able file a request for an accelerated payment from the IRS. The IRS claims it will process these requests in two weeks or less. The details of this new, expedited procedure will be announced in the near future.
An Example of the Process for Obtaining the Credit. If an employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could retain $5,000 of the $8,000 of taxes it would have deposited for making qualified leave payments. The employer still be required to deposit the remaining $3,000 on its next regular deposit date.
If an eligible employer paid $10,000 in sick leave and would otherwise be required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments, and file a request for an accelerated credit for the remaining $2,000.
Equivalent child-care leave and sick leave credit amounts are available to self-employed individuals under similar circumstances. These credits must be claimed on the individual’s income tax return and will reduce estimated tax payments.
Doug Larsen, [email protected], 559.256.5000