On March 18, 2020, Congress passed and President Trump signed into law the Families First Coronavirus Response Act, H.R. 6201 (Act). The Act, which goes into effect on April 2, 2020, responds to the novel coronavirus of 2019 (COVID-19) outbreak by providing paid sick leave and family leave to employees. The Act mandates government entities and employers with fewer than 500 workers, subject to certain exceptions and exemptions, to provide 80 hours of paid sick leave to all covered employees and up to 10 weeks of paid family leave for certain employees affected by COVID-19 who have worked at the company for at least a month.
Many US companies do not offer paid sick leave and/or family leave to employees, and the Act changes this drastically. Under the Act, employers will have to initially foot the bill for these new benefits, however some of these costs will be paid to employers through refundable tax credits against the 6.2% Social Security (or Railroad Retirement) imposed payroll tax. The tax provisions of the Act are applied retroactive to January 19, 2020 and expire December 31, 2020.
Payroll Tax Credit and Amounts: The Act provides a refundable tax credit of 100% of qualified public health emergency leave wages and qualified paid sick leave wages paid by an employer for each calendar quarter through the end of 2020. The tax credit(s) (as provided in Division G of the Act) is allowed against the tax imposed under the employer portion of Social Security and Railroad Retirement payroll taxes.
Credit Amount for Public Health Emergency Leave Wages. The amount of qualified public health leave wages for each employee is capped at $200 per day and $10,000 for all calendar quarters.
Credit Amount for Sick Leave Wages. For each employee receiving paid sick leave because he/she is subject to a quarantine, self-quarantine, or is experiencing coronavirus symptoms and seeking medical diagnosis, the amount of qualified sick leave wages an employer may take into account is capped at $511 per day ($5,110 total). If an employee receives paid sick leave because they are caring for another individual or child the amount of qualified sick leave wages taken into account for each employee is capped at $200 per day ($2,000 total). In determining the total amount of an employer’s qualified sick leave wages paid for a calendar quarter, the total number of days that the employer can seek a credit for with respect to a particular employee for that quarter may not exceed 10 days minus the number of days taken into account for that employee for all previous quarters. For example, if an employee receives three (3) days of paid sick leave under the Act in the second quarter of 2020 and the employer claims a credit for those days in the second quarter, any claims for paid leave by that employee and credit claimed by the employer are limited to no more than a total of seven (7) days of paid sick leave and employer credit in the third and fourth quarters of 2020.
Credit for Health Plan Expenses. Under the Act, credits are increased to include amounts employers pay for the employee’s health plan coverage while they are on leave. The credit amounts are increased under the Act by the amount of the employer’s group health plan expenses that are properly allocated on a pro rata basis among covered employees and coverage periods to the qualified emergency leave and sick leave wages.
To prevent a double benefit, if an employer claims the credit, the employer’s gross income for the tax year will be increased by the amount of the credit (i.e. the credit is not taken into account in determining amounts allowable as a payroll tax deduction, deductions for qualified family leave wages, or deductions for health plan expenses). Credit will not be allowed for wages where a family and medical leave credit under §45S of the Internal Revenue Code is claimed. The credit would not apply to the federal government, the government of any state or any subdivision of a state, or any agencies or instrumentalities of these entities.
Refundability of Excess Credit: The amount of the qualified paid sick leave credit and/or family leave credit allowed for any calendar quarter cannot exceed the total employer payroll tax obligations on all wages for all employees. If the amount of the allowable credit is so limited, the limited amount is treated as an overpayment which shall be refunded under sections 6402(a) and 6413(b) of the Internal Revenue Code.
The Secretary of the Treasury is given broad authority to issue regulations and guidance necessary to carry out the purposes of the Act.