To ease the burden of COVID-19 business mandates and compliance and help employers, the President signed into law the Families First Coronavirus Response Act on March 18, 2020. The Act requires employers to provide paid sick leave and expanded family and medical leave to employees unable to work or telework due to certain circumstances related to COVID-19 and applies to employers with fewer than 500 employees. The credits listed below are for amounts paid under the mandatory leave provisions. The provisions are effective April 1, 2020 through December 31, 2020.
Payroll tax credit for required paid sick leave (the payroll sick leave credit).
Who is eligible? Employers with fewer than 500 employees required by The Emergency Paid Sick Leave Act (EPSLA) to provide 80 hours of paid sick time to employees unable to work for virus-related reasons.
Paid sick pay max? The pay is up to $511 per day with a $5,110 overall limit for each employee directly affected by the virus and up to $200 per day with a $2,000 overall limit for each employee that is a caregiver.
Employer benefit? An election to take a tax credit corresponding with the EPSLA leave paid is applied against the employer’s payroll taxes which include federal income taxes, the employee and employer share of Social Security and Medicare taxes regarding all employees. Employers with a credit in excess of the payroll taxes may request an accelerated payment from the IRS. The maximum credit amount is equal to the $511/$5,110 and $200/$2,000 per-employee limits described above. The credit can be increased by certain employer expenses in connection with a qualified health plan .
Payroll tax credit for required paid family leave (the payroll family leave credit).
Who is eligible? Employers with fewer than 500 employees required to provide both paid and unpaid leave under The Emergency Family and Medical Leave Expansion Act (EFMLEA). The leave generally is available when an employee must take off to care for the employee’s child under age 18 because of a COVID-19 emergency declared by a federal, state, or local authority that either (1) closes a school or childcare place or (2) makes a childcare provider unavailable.
Paid sick pay max? Generally, the first 10 days of leave can be unpaid and then paid leave is required, pegged to the employee’s pay rate and pay hours. However, the paid leave can’t exceed $200 per day and $10,000 in the aggregate per employee for all calender quarters.
Employer benefit? The tax credit corresponding with the EFMLEA leave paid is a credit against the employer’s payroll taxes which include federal income taxes, the employee and employer share of Social Security and Medicare taxes regarding all employees. Employers with a credit in excess of the payroll taxes may request an accelerated payment from the IRS. The credit generally tracks the $200/$10,000 per employee limits described above.
Provisions common to both credits
Are self-employed individuals eligible? The Act provides a refundable income tax credit (including against the taxes on self-employment income and net investment income) for payroll sick leave and the payroll family leave of a self-employed person by treating the self-employed person both as an employer and an employee for credit purposes.
When is the benefit available? The credit applies to wages paid in a period (1) beginning on April 1, 2020 and (2) ending on December 31, 2020. For self-employed individuals, the credit is claimed on the 2020 income tax return and can reduce estimated tax payments.
Any exemptions? A business with less than 50 employees is exempt from providing the paid sick leave and the expanded family and medical leave requirements if providing the leave would jeopardize the viability of the businss as a going concern. No credit would be available.