New Tax Credits for Employers for Coronavirus Paid Sick Leave Benefits

Sick Leave for Employees Caring for Self and Family During the Pandemic

Avoidance coping can create more stress.
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The Families First Coronavirus Response Act (FFCRA) was signed into law by President Trump on March 18, 2020 to help employers provide sick leave benefits to employees. This law directly affects small and midsize employers (those with fewer than 500 employees) by giving them tax credits for their costs for: 

  • Giving coronavirus-related paid leave for employee sick leave and to care for family members, and 
  • Providing leave for employees caring for children or other family members. 

The program will remain in effect until December 31, 2020. 

If you have fewer than 50 employees and the viability of your business is threatened by having to give these benefits, your business may be eligible for an exemption to provide paid leave to employees to care for a child in cases where a school is closed or child care is unavailable. More information will be available soon. 

Employers Eligible for Tax Credits

An eligible employer is a business or tax-exempt organization with fewer than 500 employees that is required to provide emergency paid sick leave and emergency paid family and medical leave under this new law.

Sick Leave and Child Care Leave Benefits to Employees

These are benefits that employers must provide: 

Paid Sick Leave 

Employees of eligible employers can get up to 80 hours (two weeks) of paid sick leave at 100% if the employee can’t work because of one or more of these situations: 

  • Quarantine
  • COVID-19 symptoms
  • Seeking a medical diagnosis

Paid Sick Leave for Caregivers 

In addition to the paid sick leave, employees may receive up to 80 hours (two weeks) of paid sick leave at two-thirds of their pay for one or more of these situations: 

  • Caring for someone in quarantine
  • Caring for a child whose school is closed or child care is unavailable
  • The employee is experiencing “substantially similar conditions” as the sick person.

Part-time employees may get an amount equal to their average number of hours over a two-week period. 

Expanded Child Care Leave 

In addition to the sick leave credit, employers may give employees leave to care for a child whose school is closed or when child care isn’t available. The benefit to employees is two-thirds of the employee’s regular pay for up to 10 weeks, up to $200 a day or $10,000 aggregated.

This part of the law is an expansion of the Family Medical Leave Act (FMLA), which requires larger employers to give time off for unpaid leave and allow employees to return to work without penalty.  

Tax Credits for Employers 

Paid Sick Leave Credit 

  • If you are an eligible employer, you may get a refundable sick leave credit for the amounts you paid employees for the paid sick leave above. 
  • The credit is for the employee’s regular pay, up to $511 per day and up to $5,110 for a total of 10 days. 

Caregiver Leave Credit

  • If you are an eligible employer, you can claim a credit for the caregiver leave pay you gave employees, as described above. 
  • The credit is for two-thirds of the employee’s regular pay, up to $200 a day and $2,000 for up to 10 days. 

Additional Child Care Leave Credit

  • In addition to the sick leave credits above, your business may also be able to get an additional tax credit for giving paid leave to employees who need to stay home to care for a child whose school or child care is closed or whose child care provider is unavailable due to the coronavirus. 
  • The credit is for up to 10 weeks at two-thirds of the employee’s regular pay, up to $200 a day or $10,000 total. 

This leave is for employers with fewer than 500 employees and for employees who have worked for your company for 30 days. The first 10 days of leave can be unpaid.  

Health Insurance Credit

Your business may also be eligible for an additional tax credit for costs to maintain health insurance benefits for eligible employees during their leave period. 

How the Tax Credits Work for Employers

The IRS requires employers to withhold federal income taxes and FICA taxes (Social Security/Medicare tax) from employee paychecks and to pay these taxes to the IRS along with an amount for the employer portion of FICA taxes. You withhold federal income tax based on the employee’s W-4 form. The FICA tax combined for employees and employers totals 15.3% of the employee’s gross pay for both Social Security and Medicare. 

You may take these employer credits from payroll taxes withheld from ALL employee paychecks for:

  • Amounts you withhold from employee pay for federal income taxes
  • Amounts you pay as an employer for FICA taxes, and
  • Employee shares of FICA taxes.

In other words, if you pay employees for qualifying sick leave or child care leave during a pay period, you can keep the amount of the payroll tax payments you would have made to the IRS for all employees to cover these payments. 

If the amount you must pay for sick leave and child care benefits isn’t enough to cover the amount you must deposit, you can file a request for an accelerated payment from the IRS. Details will be announced.

Example of Employer Tax Credit

You pay several employees a total of $3,000 for two weeks of coronavirus-related paid sick leave. The amount you are required to deposit for payroll taxes for the pay period for all employees is $5,000. You could use the $3,000 of sick leave payments to reduce your payroll taxes to $2,000. You still must make the payroll tax payment of $2,000. 

Coronavirus Credits for Self-Employed Business Owners

Self-employed business owners may also take advantage of these tax credits. 

The IRS says self-employed business owners are:

You can claim the credit on your income tax return to reduce your estimated tax payments

Emergency Leave Expansion—More Details

The Family and Medical Leave Act currently requires employers with 50 or more employees to provide up to 12 weeks of unpaid leave each year for certain medical conditions, for either the employee or caring for a family member. 

The 2017 Tax Cuts and Jobs Act includes an FMLA tax credit for businesses that give employees family leave benefits. 

Employers are required to post a notice (not yet available) explaining this benefit to employees. 

The Bottom Line

The Families First Coronavirus Response Act is a relief bill that requires small employers—those with fewer than 500 employees—to provide limited paid-leave benefits to employees who are affected by the coronavirus emergency. To pay for the new mandatory benefits, small employers are given new tax credits and federal payroll-tax relief. These provisions will apply from the effective date through December 31, 2020. For more information and official updates, consult regularly with the IRS and U.S. Department of Labor websites.

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