Tax Credit for Emergency Sick Leave and Family Leave Paid by Employers Under the Families First Coro
The IRS has announced a plan to implement Coronavirus-related paid leave for workers and tax credits for small and midsize businesses. Eligible employers can claim these credits based on qualifying leave they provide between April 1, 2020 and December 31, 2020. Small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees.
Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed, or child-care is unavailable in cases where the viability of the business is threatened.
The Act will help American businesses with fewer than 500 employees who provide employees with paid leave, either for the employee's own health needs or to care for family members. The legislation enables employers to keep workers on the payroll, while at the same time ensuring that they are not forced to choose between their paychecks and the public health measures needed to combat the virus.
For COVID-19 related reasons, employees receive up to 80 hours of paid sick leave and expanded paid child-care leave when employees' children's schools are closed or child-care providers are unavailable.
Employers receive 100% reimbursement for paid leave pursuant to the Act.
1. Health insurance costs are also included in the credit.
2. Employers face no payroll tax liability.
3. Self-employed individuals receive an equivalent credit.
To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.
The Act provides that employees of eligible employers can receive two weeks (up to 80 hours) of paid sick leave at 100% of the employee's pay where the employee is unable to work because:
1. An employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis.
Note - 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, eligible employers may receive a refundable sick leave credit for sick leave at the employee's regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.
2. An employee who is unable to work because of a need to care for an individual subject to quarantine.
3. An employee cares for a child whose school is closed or child-care provider is unavailable for reasons related to COVID-19. Such an employee may in some instances receive up to an additional ten weeks of expanded paid family and medical leave at 2/3 the employee's pay.
4. An employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services can receive two weeks (up to 80 hours) of paid sick leave at 2/3 the employee's pay.
Paid Sick Leave Credit (applies to #2, #3 and #4) - eligible employers may claim a credit for two-thirds of the employee's regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. 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 Leave Credit - In addition to the Paid Sick Leave Credit, eligible employers may receive a refundable child-care leave credit. This credit is equal to two-thirds of the employee's regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 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.
The IRS provided the following examples of how the retention of payroll taxes will work:
If an eligible 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 use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.
If an eligible employer paid $10,000 in sick leave and was 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.
About the Author - Galit Shkurenko recently joined ECS Financial Services, Inc. as an Accounting Supervisor. Galit has more than 12 years of experience in public accounting and has provided audit, review, compilation and accounting services in a variety of industries including manufacturing, distribution and healthcare organizations, HUD multifamily housing, employee benefit plans, not-for-profit, and others. Galit received her Bachelor of Science degree in Accounting and Finance from DePaul University in 2007. In her free time, Galit enjoys outdoor activities, home improvement projects, but mostly catching up with her family and friends.