Whether you call it COVID-19 or Coronavirus, there is no deny that this global pandemic has begun impacting all of our lives in ways predictable and unpredictable. One predictable impact is the stress on employees and employers as they try to juggle work and taking care of their own health needs and care of family members.
The federal government has recognized this and with the passage of the Families First Coronavirus Response Act (“Families First Act)”), enacted on March 18, 2020, is now offering two new refundable payroll tax credits for certain businesses to be reimbursed for the costs of providing coronavirus related leave to their employees.
The Families First Act payroll tax credit is available to employers with fewer than 500 employees who have employees take paid leave. The outlines of it are as follows:
- Paid Sick Leave for those with COVID-19 or expected COVID-19: The Families Frist Act provides that employees of eligible employers can receive up to two weeks (80 hours) of paid sick leave at 100% of their normal pay when the employees is unable to work due because they are quarantined or are experiencing COVID-19 symptoms.
- Tax Credits for Employers with Employees on Paid Sick Leave due to COVID-19: When an employee is on sick leave due to quarantine or has COVID-19 symptoms then an eligible employer may receive a refundable sick leave credit for the paid sick leave at the employee’s regular rate of pay, up to $511 per day, and a total of $5,110 for ten days of sick leave.
- Paid Leave for Caretakers: The Families First Act provides the employees of eligible employers can receive up to two weeks (80 hours) of paid leave at 2/3 pay to care for a family member with COVID-19 (or suspected,) or to care for a child whose school or daycare is closed due to coronavirus. In some cases this can be up to an additional 10 weeks of expanded paid family and medical leave at 2/3 pay.
- Tax Credits for Caretakers: When an employee is on leave to care for a family member with COVID-19 (or suspected,) or to care for a child whose school or daycare is closed due to coronavirus then an eligible employer can claim a credit for 2/3 of the employee’s regular pay, up to $200 per day and $2,000 in total, up to ten days. This credit is under the sick leave framework.
In addition to the $200 per day credit outlined above, there is an additional refundable child care credit of up to $200 per day for eligible employers when an employee is on leave to care for a family member with COVID-19 (or suspected,) or to care for a child whose school or daycare is closed due to coronavirus. This is capped at 10 weeks and $10,000.
Full guidance is still expected, but as mentioned above, these credits will be in the form of payroll tax credits. So when eligible employers make their quarterly payroll tax filings (Form 941) they can retain an amount of the payroll taxes equal to the amount of sick and child care leave that they paid out.
In practice, and example of this might be that an eligible employer paid $8,000 in sick leave and child care leave and would normally be required to deposit $10,000 in payroll taxes (including both employer and employee portions), the employer could retain up to $8,000 of payroll taxes it would have otherwise deposited to pay for the sick leave and child care leave. This means the employer would only have to deposit the remaining $2,000 on the quarterly payroll filing.
Full guidance is still coming from the IRS and Department of Labor, but this is a promising opportunity for eligible employers to lessen the burden of having so many employees on sick leave and child care leave.
Note that employers with under 50 employees are exempt from the required leave provisions when these requirements would jeopardize their business, but if they do have employees on sick leave and child care leave they can still recoup the tax credits outlined above.
If you have any further questions we recommend that you consult with a legal or tax professional to help you navigate this new tax credit.