The Families First Coronavirus Response Act (the Act) was signed into law on March 18,  The Act authorizes certain relief to businesses pertaining to the COVID-19 pandemic, including tax credits to employers to help offset the cost of wages to employees taking time off under the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act.

Importantly, recently released guidance from the Department of Labor has clarified that the Act will go into effect on April 1 (not April 2 as the legislation implied).

Additional features of the Act add free coronavirus testing, additional unemployment insurance, additional food security methods and increased Medicaid federal funding.

 

EMPLOYER REQUIREMENTS

Private employers with less than 500 employees, and certain public and tax-exempt employers must provide paid sick leave to all employees and paid family and medical leave to employees who have been on the payroll for at least the prior 30 days.  Employers with fewer than 50 employees are exempt from the required paid leave portions of the Act, but such exemption will take effect after regulations are later issued by the DOL, IRS or other agency guidance is issued. At this time the employer exemption for under 50 employees is not self-effectuating.

The Act provides an employee with up to ten business days (two weeks) of paid sick leave related to COVID-19 , and as much as ten additional weeks of paid family and medical leave for eligible employees who are unable to work (or telework) because their minor child’s school or childcare service is closed due to COVID-19.  Full- or part-time employment status is considered, and the paid leave takes account of their prior working hours.

 

HOW MUCH OF A TAX CREDIT IS AVAILABLE?

Emergency sick leave pay is limited to $511 per day, per affected person (or $5,110 in total) for people in quarantine or who are seeking an illness diagnosis.  Affected employees also qualify for up to $200 per day, per person (or $2,000 in total) to care for a quarantined family member, or for childcare related to such quarantined persons.

After the expiration of the two weeks of emergency paid sick leave, family and medical leave may be claimed by employees for up to 10 weeks of job-protected leave if the employee cannot work because their child’s school or childcare service is closed due to COVID-19.  Employers must provide two-thirds of the employee’s usual pay, during the up to ten-week period, not to exceed $200 per day and a maximum total of $10,000 per employee.

 

REFUNDABLE TAX CREDITS

Refundable federal tax credits are provided to the employer to contribute to its costs for these new leave benefits, as follows:

  • 100% of qualified paid sick leave wages paid by the employer, which is credited against the employer’s portion of FICA (Social Security taxes) owed to the IRS for each successive pay period; and
  • 100% refundable tax credit for 100% of qualified family leave wages paid by the employer, which is also credited to the employer’s portion of its FICA (Social Security taxes) owed for each period.

For self-employed persons, the tax credits are 100% of qualified sick leave wages paid, and 67% of qualified wages paid where an employee’s child’s school or daycare is closed.  This credit is also allowed to be claimed against federal income taxes owed by the self-employed, and is provided for family leave wages paid by the self-employed person equal to 100% of qualified family leave wages.  Detailed time and other records should be maintained by all employers for each concerned employee or family member in the event questions arise.

Under the IRS and U.S. DOL Joint Release dated March 20, 2020, IR-2020-57 spells out these and other details of the new Act.

In addition, many issues exist as to the interaction of the new statutory provisions of the Act with existing laws.  Guidance on a variety of issues has been requested from the IRS and DOL and is expected to be released shortly.  We will issue a further supplement to this summary as guidance is provided.

 

CONTACT

If you have questions concerning tax credits available for your business or anything contained in this alert, please contact Richard Hindlian in our Tax Practice.

 

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