Authored by: Anthony Boggs, Ed Emerson, Scott Wagner, and John Harden
On March 18, 2020, President Trump signed H.R. 6201: Families First Coronavirus Response Act (the FFCRA) into law. The FFCRA includes measures focused on the economic impact of COVID-19 on families and workers – in particular, a new requirement that employers must provide employees with paid sick leave and paid family leave related to the COVID-19 pandemic, see here. The FFCRA includes economic relief to employers in the form of refundable tax credits for qualified paid sick leave wages and qualified paid family leave wages under the FFCRA.
Payroll Tax Credits
The FFCRA provides a refundable tax credit for payments made by employers with less than 500 employees for the period beginning April 1, 2020 and ending December 31, 2020 for (i) qualified sick leave wages and (ii) qualified paid family leave wages under the FFCRA. The amount of credit allowed for each employer for qualified sick leave wages and qualified family leave wages is increased by (a) the employer’s qualified health plan expenses (i.e., amounts paid to maintain a qualified group health plan, to the extent such amounts are excluded from income of employees) properly allocable to qualified sick leave wages or qualified family leave wages and (b) 100% of the employer’s medicare taxes. The tax credit is allowed against 100% of the employer’s social security taxes for all employees. If the amount of the tax credit exceeds the employer’s social security taxes for all employees, the excess is treated as an overpayment of taxes and is refundable to the employer.
The credit for qualified sick leave wages per employee is limited to $511 per day ($5,110 in the aggregate) for employees (i) that are subject to a federal, state or local quarantine or isolation order because of COVID-19, (ii) have been advised by a health care provider to self-quarantine because of COVID-19 or (iii) are experiencing symptoms of COVID-19 and seeking a medical diagnosis.
The credit for qualified sick leave wages per employee is limited to $200 per day ($2,000 in the aggregate) for employees (a) that are caring for someone subject to a federal, state or local quarantine or isolation order because of COVID-19, or someone that has been advised by a health care provider to self-quarantine because of COVID-19, (b) that are caring for a son or daughter if the school or place of care for the son or daughter has closed, or the child care provider is unavailable, because of COVID-19, or (c) are experiencing any other substantially similar condition to COVID-19, as specified by the Secretary of Health and Human Services.
The credit for qualified family leave wages per employee is limited to $200 per day ($10,000 in the aggregate).
In order to prevent a double benefit, (i) no deduction is allowed for the amount of the above credits, (ii) no credit is allowed with respect to wages for which a credit was allowed prior to the FFCRA for paid family and medical leave and (iii) no credit is allowed for wages taken into account in determining an employer’s employee retention credit under the CARES Act.
Self-Employment Tax Credits
The FFCRA provides similar benefits for self-employed individuals. It provides refundable tax credits for the qualified sick leave equivalent amount for self-employed individuals (i) that are subject to a federal, state or local quarantine or isolation order because of COVID-19, (ii) have been advised by a health care provider to self-quarantine because of COVID-19 or (iii) are experiencing symptoms of COVID-19 and seeking a medical diagnosis.
The FFCRA also provides for refundable tax credits for the qualified sick leave equivalent amount for self-employed individuals (a) that are caring for someone subject to a federal, state or local quarantine or isolation order because of COVID-19, or someone that has been advised by a health care provider to self-quarantine because of COVID-19, (b) that are caring for a son or daughter if the school or place of care for the son or daughter has closed, or the child care provider is unavailable, because of COVID-19, or (c) are experiencing any other substantially similar condition to COVID-19, as specified by the Secretary of Health and Human Services. Any tax credits for qualified sick leave equivalent amounts claimed under this paragraph would be less than those claimed under the preceding paragraph (similar to the differences with qualified sick leave payroll tax credits).
A self-employed individual may also receive refundable tax credits under the FFCRA for the qualified family leave equivalent amount with respect to such self-employed individual.
The FFCRA provides limitations to prevent any potential double benefits for self-employed individuals.
Social Security Tax Liability
Any wages required to be paid under the FFCRA for the period beginning April 1, 2020 and ending December 31, 2020 shall not be considered wages or compensation for purposes of determining the employer’s social security tax liability.
Reduced Deposit Requirement and Expedited Reimbursement for Employers Claiming Payroll Tax Credits Under the FFCRA
On March 20, 2020, the IRS announced in IR 2020-57 that eligible employers will be able to begin taking advantage of the payroll tax credits made available by the FFCRA immediately.
Typically, 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.
Eligible employers who pay qualified sick leave wages or qualified family leave wages will be able to retain an amount of payroll taxes withheld from employees equal to the amount of qualified sick leave wages and qualified family leave wages that they paid under the FFCRA, rather than deposit those taxes with the IRS. The payroll taxes that are available for retention include withheld federal income taxes, the employee’s share of social security and medicare taxes, and the employer’s share of social security and medicare taxes with respect to all employees.
If the employer has insufficient payroll taxes to cover the cost of qualified sick leave wages and qualified family leave wages paid, employers will be able to file a request for an accelerated payment from the IRS. The IRS expects to release additional detailed guidance shortly.
