On March 18, 2020, President Trump signed the Families First Coronavirus Response Act, H.R. 6201 (Act) into law. The Act responds to the novel coronavirus of 2019 (COVID-19) outbreak by providing paid sick leave and free COVID-19 testing, expanding food assistance and unemployment benefits and requiring employers to provide additional protections for healthcare workers. Below is a summary of the tax-related provisions, which are effective March 18, 2020, and expire December 31, 2020.
Government entities and employers with fewer than 500 workers are mandated by the Act 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. The Act also provides a series of tax credits to employers and self-employed individuals to help cover lost income due to the COVID-19 outbreak.
Emergency Paid Sick Leave
The emergency paid sick leave benefit provides the following:
Small to midsize employers are required to provide 80 hours of paid sick leave to full-time employees
For part-time employees, paid sick time amounts to the number of hours the employee would work, on average, over a two-week period
Ensures paid sick leave covers days when any of the following occur:
An employee’s child’s school or day care is closed
An employee or a family member whom the employee cares for is quarantined due to COVID-19
The employee is experiencing symptoms related to COVID-19 and is seeking a medical diagnosis
Enables employees who work under a multi-employer collective bargaining agreement to receive sick pay based on hours worked
These wages are exempt from the employer’s portion of Social Security tax and an additional payroll tax credit is allowed for the amount of Medicare tax paid on those wages
Emergency Family & Medical Leave Expansion
For emergency paid family and medical leave, employees caring for a minor child are entitled to two-thirds of their average earnings for up to 10 weeks. This benefit is capped at $10,000 per individual. Eligibility for this expanded benefit is limited to employees who are unable to work—on site or remotely—because their child’s school or day care was closed due to COVID-19. Unlike the emergency paid sick leave program, working under quarantine or caring for a family member affected by COVID-19 isn’t considered “qualifying needs” for the expanded family and medical leave benefit.
The Act gives the U.S. Department of Labor authority to issue regulations to exempt small employers with fewer than 50 employees. Employers in the healthcare and emergency response fields may elect to exclude certain employees from these expanded family and medical leave provisions. Similar to the emergency paid sick leave benefit, these wages are exempt from the employer’s portion of Social Security tax, and an additional payroll tax credit is allowed for the amount of Medicare tax paid on those wages.
Tax Credits for Paid Sick & Paid Family & Medical Leave
Payroll Credits for Required Paid Sick & Family Leave
The paid sick time payroll tax credit can be claimed on a quarterly basis, equal to 100 percent of the amount of sick leave wages paid. The credit is limited to $511 per day ($5,110 total) if an employee is taking time off to care for themselves or $200 per day ($2,000 total) if the sick leave is to care for an individual who’s quarantined or showing symptoms of COVID-19 or a minor child whose school is closed. The credit is refundable if it exceeds the amount the employer owes in payroll tax.
For employers who pay family leave wages under the Act, a separate payroll tax provision allows a 100 percent credit against the employer’s share of the payroll tax for each employee, limited to $200 per day, or a total of $10,000 per employee. The credit is refundable if it exceeds the amount the employer owes in payroll tax.
Employers must increase their gross income for the taxable year by the amount of payroll credit received. Also, any wages considered in determining the payroll credit can’t be used in determining the amount of credit under Internal Revenue Code Section 45S related to paid family and medical leave. See this BKD Thoughtware® alert for more information on that credit.
Credits for Sick & Family Leave for Certain Self-Employed Individuals
Self-employed workers, including independent contractors and gig economy workers, also can claim a credit against their regular income taxes related to sick or family leave. The credit covers 100 percent of self-employed individuals’ daily self-employment income or 67 percent if an individual is taking care of a child whose school is closed. The per-day amount is limited to the lesser of an individual’s average daily self-employment income, or $511 per day if caring for themselves or $200 if caring for a minor child. The number of eligible days is limited to 10 if related to sick leave and 50 if related to family leave. The Act directs Treasury to provide guidance on what documentation self-employed individuals must submit to claim the credit.
Other Benefits Provided Under the Act
The Act also provides for free COVID-19 testing, access to meals for school-aged children forced to stay home, extended unemployment insurance and other measures. In addition, the Act authorizes $15 million to the IRS to carry out the tax-related provisions.
BKD COVID-19 Resource Center
BKD has created a COVID-19 Resource Center to help disseminate important information for our clients and friends as we evaluate ways to mitigate the inevitable financial effects. Through this resource center, we’ll keep you up to date with relevant news, changing guidelines, new regulations and anything else we believe you need to know.
Be sure to reach out to your BKD Trusted Advisor™ or use the Contact Us form below if you have questions about how these provisions may affect you.