Updated: May 8, 2020
Sick Leave Requirements and Tax Credits in Response to Coronavirus
On March 18, 2020, President Trump signed the Families First Coronavirus Response Act into law. This legislation provides paid sick leave to employees impacted by COVID-19, and employer tax credits to cover the costs of the paid leave benefit.
The bill applies to private employers with fewer than 500 employees, as well as some governmental employers, as explained in more detail below. The DOL can exempt businesses with fewer than 50 employees from the leave benefits if the requirements would jeopardize the viability of the business as a going concern.
The new law remains effective until December 31, 2020. The tax credit can be applied to a taxpayers’ 2020 tax return. It is not necessary to take other steps beforehand, if you meet the requirements for the credit, you can apply it on your tax return.
Paid leave benefits to employees of covered employers:
- Up to 80 hours of paid sick leave (pro-rated for part-time employees) available for immediate use, regardless of length of employment, if the employee cannot work (or telework) because he/she:
- Is experiencing symptoms of COVID-19 and seeking a medical diagnosis (paid at 100% of employer rate and capped at $511/day and $5,110/total)
- Is subject to a government quarantine or has been told by a health care provider that he or she should self-quarantine due to COVID-19 (paid at 100% of employer rate and capped at $511/day and $5,110/total)
- Is assisting an individual who must quarantine for those reasons (paid at 66.7% of employee rate and capped at $200/day and $2,000/total)
- Is caring for a child if the school or child-care provider is unavailable due to COVID-19 (paid at 66.7% of employee rate and capped at $200/day and $2,000/total)
- Is experiencing any other substantially similar condition specified by HHS (paid at 66.7% of employee rate and capped at $200/day and $2,000/total)
- Up to 12 weeks of expanded FMLA leave, unpaid during the first 10 days, and then paid at 66.7% of the employee rate (capped at $200/day and $10,000/total) and available to anyone after 30 days of employment for time to care for the employee’s child if the school or child-care provider is unavailable due to COVID-19 and the employee is unable to work (or telework).The bill applies to all public agencies subject to the Fair Labor Standards Act, regardless of the number of
- Only employees in the United States or its possessions or territories are included in the
Tax credits for employers to cover costs of employee leave:
- The bill provides employer tax credits to help cover the cost of the employee leave benefits. The credit is computed on a quarterly basis. The employer would take the total amount of qualified sick leave wages paid (in the first two weeks) and qualified family leave wages paid (in the following 10 weeks) during that quarter, and such amounts would be a credit against the employer-portion of social security taxes (at 6.2%) that would otherwise be due from the employer. Any excess amounts above and beyond the employer-portion of social security taxes would be refunded as a credit (as if the employer had overpaid the employer-portion of social security taxes for that period).
- In effect then, the government will provide a credit against the employer- portion of the social security taxes that would otherwise be due from the employer as follows:
- Against the social security taxes due for the given period, and then
- As a refund as if the excess was an overpayment by the employer of the employer-portion of the social security
For purposes of computing the amount of the credit, there are two relevant periods:
- The First Two Weeks: This credit relates to qualified sick leave wages paid. The credit amount depends on whether the employee is sick, caring for a sick family member, or providing childcare to the employee’s child:
- Employee Sick: The credit is the lesser of the daily wage or $511/employee, per day, for 10 days.
- Providing Care to Family Member/Childcare to Child: The credit is the lesser of the daily wage or $200/employee, per day, for 10
- The Next 10 Weeks: This credit relates to qualified family leave wages paid. The credit is the lesser of the daily wage or $200/employee, per day, with the credit capped at $10,000/employee for a given calendar quarter.
*The Treasury Secretary can provide advances to employers, waive penalties for not depositing payroll taxes in anticipation of the credit, or take other steps to assist with cash flow issues.
Exemption for Small Businesses with 50 or Fewer Employees
The exemption from the paid sick leave and FMLA requirements applies to employers with 50 or fewer employees. The exemption applies specifically in cases where an employee’s coronavirus leave is related to care for his or her child whose school or place of care is closed (or whose child-care provider is unavailable), and:
- The employee’s leave would result in expenses and financial obligations exceeding available business revenues and cause the business to cease operating at minimum capacity,
- The employee’s absence would entail substantial risk to the financial health or operational capabilities of the business because of specialized skills, responsibilities, or knowledge of the business, or
- There are insufficient employees able, willing, and qualified at the time and place needed to perform labor or services provided by the employee – and these labor or services are need for the business to operate at a minimal capacity.
Department of Labor Initial Guidance
On April 24, the IRS published additional guidance implementing this provision for employers and employees:
- Eligible employers can claim the credits on Form 941, Employer’s Quarterly Federal Tax Return), but they can benefit more quickly from the credits by reducing their federal employment tax deposits. If there are insufficient federal employment taxes to cover the amount of the credits, an employer can request an advance payment of the credits from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
- The credits covers 100 percent of the qualified sick leave wages and qualified family leave wages paid during a calendar quarter, plus the amount of the employer’s share of Medicare taxes imposed on those wages. For more information, seeWhat is included in “qualified sick leave wages”? and What is included in “qualified family leave wages”?
- Employers claiming the credits for qualified leave wages must retain records and documentation for each employee’s leave to substantiate the claim for the credits, in addition to retaining Forms 941, Employer’s Quarterly Federal Tax Return, 7200, Advance of Employer Credits Due To COVID-19, and any other applicable filings made to the IRS requesting the credit.
- There is no credit for the employer portion of the social security tax employers are required to pay on the qualified leave wages.
This brief was prepared by David Hollingsworth and your AALU/GAMA Government Affairs Team. Please contact David with any questions.