Updated: March 24, 2020
On March 18, 2020, the President signed into law the Families First Coronavirus Response Act (Families First Act), which includes several relief measures to help individuals and businesses affected by the coronavirus (COVID-19). The legislation had previously passed through the House on Friday, March 13, 2020, but then technical corrections were made and approved on March 16, 2020.
The provisions in the Families First Act begin on a date within 15 days of enactment, prescribed by the Secretary of the Treasury, through December 31, 2020.
In this post, you will find information on:
- Tax Credits under the Families First Coronavirus Response Act
- Emergency Family & Medical Leave Expansion Act
- Emergency Paid Sick Leave Act
- Other Provisions in the Families First Coronavirus Response Act
Tax Credits under the Families First Coronavirus Response Act
The Families First Act had tax relief measures that are in addition to the extended tax filing and payment deadline.
The Families First Act provides the following refundable tax credits to employers with less than 500 employees:
Payroll Credit for Sick Wages Related to Coronavirus
- A refundable credit of up to $511 per day per employee to assist with covering the cost of providing up to 10 days ($5,110 total) of paid leave related to an employee who is taking paid sick leave to care for themselves (as defined below under Emergency Paid Sick Leave Act).
- A refundable credit of up to $200 per day per employee to assist with covering the cost of providing up to 10 days ($2,000 total) of paid leave related to an employee who is unable to work due to caring for another person (as defined below under Emergency Paid Sick Leave Act).
- Employers can claim up to 100% of paid sick wages per employee on a quarterly basis up to the capped amount ($511 per day or $200 per day).
- The tax credit is reduced by any credits allowed for the employment of qualified veterans (Work Opportunity Credit) and research expenditures of qualified small businesses (Payroll Tax Credit for Increasing Research Activities).
- The employer must include the tax credit as taxable income.
Payroll Credit for Family Leave Related to Coronavirus
- A refundable credit equal to two thirds of the employee’s regular pay up to $200 per day for up to 10 weeks of leave ($10,000 total) related to an employee who is unable to work due to caring for a child whose school or child care provider is unavailable due to the Coronavirus.
Payments to employees would be taxable income to the employees and subject to employee payroll taxes, but not subject to the employer portion of payroll taxes. Employers can waive these credits.
The IRS intends to release official guidance soon but in a press release stated that employers who pay qualifying sick or family leave will be able to retain an amount of the payroll taxes equal to the amount of sick or family leave that they paid, instead of depositing that with the IRS. The payroll taxes that employers are able to retain include federal income taxes, the employee share of Social Security and Medicare taxes and the employer’s share of Social Security and Medicare taxes. If the amount of payroll taxes is less than the sick leave paid, the employer will be able to file for an accelerated payment from the IRS, which the IRS expects to process in two weeks or less. No official procedure has been put out by the IRS as of yet.
Example: If an employer paid $4,000 in paid sick leave and is required to pay $6,000 in payroll taxes, including taxes withheld from all its employees, the employer could use the $4,000 credit to offset those payroll taxes. Under the law, the employer would then only be required to pay $2,000 on its next deposit date. If the employer was only required to pay $3,000 in payroll taxes, the employer would then file a request for an accelerated credit for the remaining $1,000.
Employers should keep track of employees that are requesting sick leave due to the coronavirus and document if it is for the employee or someone they are caring for, as well as calculate employee wages compared to the $511 per day or $200 per day. This information could be needed as part of quarterly payroll tax returns or annual income tax filings.
Income Tax Credit for Self-Employed Individuals for Sick & Family Leave
- Self-employed workers can claim a credit against their income taxes for sick or family leave.
- The credit is 100% of the self-employed worker’s daily self-employment income if they are caring for themselves; if they are caring for a child whose school or place of care is closed, the credit is 67%.
- The per-day capped amount is the lesser of the individual’s average daily self-employment income, or $511 per day if caring for themselves, or $200 if caring for a minor child.
- These credits will be claimed on the individual’s income tax return and will reduce estimated tax payments.
- The IRS will be issuing further guidance on this matter.
If you have any questions, please contact your BSSF advisor.
Emergency Family & Medical Leave Expansion Act
The Families First Act amends and expands the Family and Medical Leave Act (FMLA) temporarily. It entitles an employee, caring for a minor child, to be paid two-thirds of their average earnings for up to 10 weeks, up to $200 per day and $10,000 in total per employee. To be eligible for this benefit, the employee must be unable to work, on-site or remotely, because their child’s school or place of care closed due to COVID-19.
Under the Emergency Family & Medical Leave Expansion Act, the period of unpaid days has been reduced from 14 days to 10 days. During this 10-day period, employees can elect to use paid leave time to cover some or all of those days. After that unpaid period, the benefit of two-thirds of their average earnings will kick in for full-time employees. Part-time employees are eligible for this benefit to be paid based on average hours worked in the six months prior to the leave; or, if employed for less than six months, reasonable expectation of hours to be worked.
The U.S. Department of Labor has the authority to exempt small businesses with less than 50 employees from the Emergency Family & Medical Leave Expansion Act. Healthcare providers and emergency responders may elect to exclude certain employees.
Emergency Paid Sick Leave Act
The emergency paid sick leave benefit allows eligible employees to take paid sick leave if the employee is:
- subject to a federal, state or local quarantine or isolation order related to COVID-19;
- advised to self-quarantine by a healthcare provider;
- experiencing symptoms of COVID-19 and seeking medical advice;
- caring for someone subject to quarantine by federal, state or local authorities or advised to self-quarantine by a healthcare provider;
- caring for their child if the child’s school or place of care is closed; or
- experiencing any other similar condition as specified by federal officials.
Employers with fewer than 500 employees are required to provide full-time employees with 80 hours of paid sick leave at the employee’s regular rate, up to $511 per day, if the employee is caring for themselves or two-thirds the employee’s regular rate, up to $200 per day, if they are caring for someone else. This paid sick leave would not carry over to the following year and may be in addition to sick leave already provided.
There are provisions for part-time employees that calculate the rate of pay based on hours worked in the six months prior to the leave; or, if worked less than six months, calculated based on employee’s reasonable expectation of average number of hours to be scheduled.
Other Provisions in the Families First Coronavirus Response Act
The Families First Act also contained other provisions, including:
Coverage for COVID-19 Testing: Private health plans are required to cover COVID-19 diagnostic testing and related services to employees and their covered dependents through the national emergency period.
Emergency Unemployment Insurance Stabilization and Access Act of 2020: $1 billion is provided in 2020 for emergency grants to states for unemployment insurance benefit processing and payment or related activities.
We continue to monitor developing stories around the coronavirus relief efforts and will update as we have more information. To get all the latest news, sign up for the BSSF Newsletter.
Disclaimer: This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.