WASHINGTON – Today the U.S.
Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of
Labor (Labor) announced that small and midsize employers can begin taking
advantage of two new refundable payroll tax credits, designed to immediately
and fully reimburse them, dollar-for-dollar, for the cost of providing
Coronavirus-related leave to their employees. This relief to employees and
small and midsize businesses is provided under the Families First Coronavirus
Response Act (Act), signed by President Trump on March 18, 2020.
The Act will help the United States
combat and defeat COVID-19 by giving all American businesses with fewer than
500 employees funds to provide employees with paid leave, either for the
employee’s own health needs or to care for family members. The legislation will
enable employers to keep their workers on their payrolls, while at the same
time ensuring that workers are not forced to choose between their paychecks and
the public health measures needed to combat the virus.
Key Takeaways
- Paid Sick Leave for Workers
- For COVID-19 related reasons, employees receive up to 80 hours of paid sick leave and expanded paid child care leave when employees’ children’s schools are closed or child care providers are unavailable.
- Complete Coverage
- Health insurance costs are also included in the credit.
- Employers face no payroll tax liability.
- Self-employed individuals receive an equivalent credit.
- Employers receive 100% reimbursement for paid leave pursuant to the Act.
- Fast Funds
- An immediate dollar-for-dollar tax offset against payroll taxes will be provided
- Where a refund is owed, the IRS will send the refund as quickly as possible.
- Reimbursement will be quick and easy to obtain.
- Small Business Protection
Employers with fewer than 50 employees are eligible for
an exemption from the requirements to provide leave to care for a child whose
school is closed, or child care is unavailable in cases where the viability of
the business is threatened.
- Easing
Compliance
- Requirements
subject to 30-day non-enforcement period for good faith compliance
efforts.
To take immediate advantage of the
paid leave credits, businesses can retain and access funds that they would
otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient
to cover the cost of paid leave, employers can seek an expedited advance from
the IRS by submitting a streamlined claim form that will be released next week.
Background
The Act provided paid sick leave
and expanded family and medical leave for COVID-19 related reasons and created
the refundable paid sick leave credit and the paid child care leave credit for
eligible employers. Eligible employers are businesses and tax-exempt
organizations with fewer than 500 employees that are required to provide
emergency paid sick leave and emergency paid family and medical leave under the
Act. Eligible employers will be able to claim these credits based on qualifying
leave they provide between the effective date and Dec. 31, 2020. Equivalent credits
are available to self-employed individuals based on similar circumstances.
Paid Leave
The Act provides that employees of
eligible employers can receive two weeks (up to 80 hours) of paid sick leave at
100% of the employee’s pay where the employee is unable to work because the
employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a
medical diagnosis. An employee who is unable to work because of a need to care
for an individual subject to quarantine, to care for a child whose school is
closed or child care provider is unavailable for reasons related to COVID-19,
and/or the employee is experiencing substantially similar conditions as
specified by the U.S. Department of Health and Human Services can receive two
weeks (up to 80 hours) of paid sick leave at 2/3 the employee’s pay. An
employee who is unable to work due to a need to care for a child whose school
is closed, or child care provider is unavailable for reasons related to
COVID-19, may in some instances receive up to an additional 10 weeks of
expanded paid family and medical leave at 2/3 the employee’s pay.
Paid Sick Leave Credit
For an employee who is unable to
work because of Coronavirus quarantine or self-quarantine or has Coronavirus
symptoms and is seeking a medical diagnosis, eligible employers may receive a
refundable sick leave credit for sick leave at the employee’s regular rate of
pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.
For an employee who is caring for
someone with Coronavirus, or 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 may claim a credit for two-thirds of the
employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate,
for up to 10 days. Eligible employers are entitled to an additional tax credit
determined based on costs to maintain health insurance coverage for the
eligible employee during the leave period.
Child Care Leave Credit
In addition to the sick leave
credit, for an employee who is unable to work because of a need to care for a
child whose school or child care facility is closed or whose child care
provider is unavailable due to the Coronavirus, eligible employers may receive
a refundable child care leave credit. This credit is equal to two-thirds of the
employee’s regular pay, capped at $200 per day or $10,000 in the aggregate. Up
to 10 weeks of qualifying leave can be counted towards the child care leave
credit. Eligible employers are entitled to an additional tax credit determined
based on costs to maintain health insurance coverage for the eligible employee
during the leave period.
Prompt Payment for the Cost of
Providing Leave
When employers pay their employees,
they are required to withhold from their employees’ paychecks federal income
taxes and the employees’ share of Social Security and Medicare taxes. The
employers then are required to deposit these federal taxes, along with their
share of Social Security and Medicare taxes, with the IRS and file quarterly
payroll tax returns (Form
941 series) with the IRS.
Under guidance that will be
released next week, eligible employers who pay qualifying sick or child care
leave will be able to retain an amount of the payroll taxes equal to the amount
of qualifying sick and child care leave that they paid, rather than deposit
them with the IRS.
The payroll taxes that are
available for retention include withheld 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.
If there are not sufficient payroll
taxes 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. The IRS
expects to process these requests in two weeks or less. The details of this
new, expedited procedure will be announced next week.
Examples
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.
Equivalent child care leave and
sick leave credit amounts are available to self-employed individuals under
similar circumstances. These credits will be claimed on their income tax return
and will reduce estimated tax payments.
Small Business Exemption
Small businesses with fewer than 50
employees will be eligible for an exemption from the leave requirements
relating to school closings or child care unavailability where the requirements
would jeopardize the ability of the business to continue. The exemption will be
available on the basis of simple and clear criteria that make it available in
circumstances involving jeopardy to the viability of an employer’s business as
a going concern. Labor will provide emergency guidance and rulemaking to
clearly articulate this standard.
Non-Enforcement Period
Labor will be issuing a temporary
non-enforcement policy that provides a period of time for employers to come
into compliance with the Act. Under this policy, Labor will not bring an
enforcement action against any employer for violations of the Act so long as
the employer has acted reasonably and in good faith to comply with the Act.
Labor will instead focus on compliance assistance during the 30-day period.