Effective April 1, 2020, under the Families First Coronavirus Response Act (FFCRA) employees of employers with less than 500 employees shall be entitled to certain limited paid leave benefits related to COVID-19. A detailed summary of those benefits is contained in our last COVID-19 update. The following is a current explanation on how employers can access tax credits available to cover the costs of providing leave under the FFCRA.
Treasury, IRS, and Labor Plan to Implement Coronavirus-Related Paid Leave Limits
Reimbursement to employers for recovery of the costs of providing Coronavirus-related leave is intended to be immediate and reimbursed dollar-for-dollar. Employers are to receive 100% reimbursement for paid leave which includes health insurance costs. The tax credit is an offset against any payroll tax liability of the employer.
- Emergency Paid Sick Leave. The FFCRA provides up to 80 hours of paid leave for eligible employees who are unable to work because of Coronavirus quarantine or self-quarantine, or are exhibiting Coronavirus symptoms and are seeking a medical diagnosis. Employers may receive a refundable sick leave credit for payment of emergency sick leave, up to $511 per day and $5,110 in the aggregate for a total of 10 days.
- FMLA Child Care Leave. The FFCRA also expands FMLA to provide paid leave for qualifying employees who are unable to work due to the need to care for their child whose school or child care facility is closed, or whose child care provider is unavailable, due to the Coronavirus. Employers can receive a refundable child care leave tax credit for providing this leave. The credit is equal to two-thirds of the eligible employee’s regular pay, and is capped at $200 per day or an aggregate amount of $10,000. Up to 10 weeks can be counted towards this credit. Eligible employers are also entitled to an additional tax credit based on costs paid to maintain health insurance coverage during the period the employee is on leave.
Prompt Payment to Employers
The IRS is expected to issue further guidance this week. The basics though are that eligible employers who pay FFCRA sick or child care leave to qualifying employees will be able to retain the payroll tax amount due, equal to the qualifying sick and child care leave it paid, instead of paying it to the U.S. Treasury.
The payroll taxes that are available for employer retention include withheld federal income taxes, the specific employee’s share of Social Security and Medicare taxes, as well as the employer’s share of the same taxes for all employees. If there is not sufficient payroll taxes to cover the dollar-for-dollar costs, the employer can apply for an accelerated refund payment from the IRS with an anticipated two week turn-around time.
- 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 its $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required to deposit the remaining $3000 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 refund for the remaining $2,000.
If you have any questions about this notice or any other issue facing your business during this crisis, we are here to help. Call (503) 323-9000 and ask to speak to someone in our business practice group. Thank you and stay safe. Together we will get through this.