Payroll Tax Credits under Families First Coronavirus Response Act

Blog
March 24, 2020

The Families First Coronavirus Response Act was signed by the president on March 18, giving businesses with fewer than 500 employees the ability to claim refundable payroll credits based on qualifying paid leave—family and medical leave or sick leave—that they provide through December 31. Equivalent credits are available to self-employed individuals based on similar circumstances.

Emergency Paid Sick Leave Credit under the Emergency Paid Sick Leave Act (EPSLA)

  • Based on the sick leave paid to an employee at 100% of his or hers regular pay rate up to $511 per day, for a total of 10 days ($5,110 in the aggregate). The qualifying employee:
    • Is subject to a quarantine or isolation order
    • Is advised by a health provider to self-quarantine
    • Is experiencing coronavirus symptoms and is seeking a medical diagnosis
  •  Based on the sick leave paid to an employee at 2/3 of his or hers regular pay rate up to $200 per day for a total of 10 days ($2,000 in the aggregate). The qualifying employee:
    •  Is caring for someone with coronavirus
    • 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 by costs to maintain health insurance coverage for the eligible employees during the leave period.

Family and Medical Leave Credit under the Emergency Family and Medical Leave Expansion Act (EFMLEA)

  • Based on the leave paid to an employee at 2/3 of his or hers regular pay rate up to $200 per day for a total of 10 weeks ($10,000 in the aggregate). The qualifying employee:
    • Is an employee who has been employed for at least 30 days and is unable to work or telework due to a need for leave to care for a son or daughter under age 18 because a school or place of care has been closed, or a childcare provider is unavailable due to the coronavirus

The first 10 days of leave may be unpaid and then paid leave is required.

Under guidance that is expected be released this or next week, eligible employers who pay qualifying sick or child care leave will receive the above referenced credits by retaining the payroll taxes equal to the amount of qualifying sick and child care leave that they expect to pay. This includes 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. According the IRS Information Release (IR 2020-57), if the payroll taxes are not sufficient to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. Processing times are expected to be two weeks or less.

Examples (provided by IR 2020-57)

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.

Our team will continue to monitor this situation and keep you informed about any relevant updates that impact your business. More tax-related news can be found on our service page. For help guiding your business through the coronavirus outbreak, visit our COVID-19 resource hub.