UPDATE: On March 20th, the U.S. Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of Labor announced plans to implement Coronavirus-related paid leave for workers and tax credits for small and midsize businesses to swiftly recover the cost of providing Coronavirus-related leave. To learn more, click here.
On March 18th, the President signed legislation aimed at expanding emergency family and medical leave, unemployment insurance, sick leave, food and nutrition and funds for testing and other healthcare provisions.
The Sick Leave and Family and Medical Leave provisions both create additional burdens on certain employers. To compensate, the legislation provides those employers with a payroll tax credit.
Employers with fewer than 500 employees and government entities are mandated to provide 80 hours of paid sick leave to all covered employees and up to 10 weeks of paid family leave to certain employees affected by the coronavirus.
Emergency Paid Sick Leave
- Provide 80 hours of paid sick leave to full- time employees. Part-time employees are entitled to paid sick leave in an amount equivalent to the number of hours they would normally be scheduled to work during a two-week period
- Applies when any of the following occur:
• An employee’s child’s school or day care is closed
• An employee or a family member whom the employee cares for is quarantined due to COVID-19
• The employee is experiencing symptoms associated with COVID-19 and is seeking a medical diagnosis
- Sick leave wages are exempt from the employer’s portion of Social Security tax and an additional payroll tax credit is allowed for the amount of Medicare tax paid on those wages
Emergency Family and Medical Leave Expansion
- FMLA leave is expanded for an employee who is unable to work (or telework) because the employee needs leave to care for a child under 18 years old due to the closure of the child’s school or place of care, or because childcare is unavailable due to the coronavirus
- The Secretary of Labor has the authority to exempt businesses with fewer than 60 employees if compliance would jeopardize the continuing existence of the business
- Eligible employees are those who have been on the job for at least 30 days.
- The first 10 days of the expanded FMLA is unpaid.
Payroll Tax Credits
Payroll Credits for Required Paid Sick & Family Leave
The paid sick time payroll tax credit can be claimed on a quarterly basis. The amount is equal to 100 percent of the sick leave wages paid. The credit is limited to $511 per day ($5,110 total) if an employee is taking time off to care for themselves or $200 per day ($2,000 total) if the sick leave is to care for an individual who’s quarantined, showing symptoms or caring for a minor child whose school is closed.
There is an additional provision for employers who pay family leave wages under the Act that allows a 100 percent credit against the employer’s share of the payroll tax for each employee This credit is limited to $200 per day, or a total of $10,000 per employee.
Both credits are refundable if they exceed the amount the employer owes in payroll tax.
Credits for Sick & Family Leave for Certain Self-Employed Individuals
Self-employed workers will also be able to claim a credit against their regular income taxes related to sick or family leave. The credit covers 100 percent of self-employed individuals’ daily self-employment income or 67 percent if the individual is taking care of a child whose school is closed. The per-day amount is limited to the lesser of an individual’s average daily self-employment income, or $511 per day if caring for themselves or $200 if caring for a minor child. The number of eligible days is limited to 10 if related to sick leave and 50 if related to family leave. We are awaiting guidance from Treasury as to what documentation will be required.
If you have any questions about the Families First Coronavirus Response Act’s implications for your individual or business taxes, contact us today.