What You Need to Know – Employer Credits for Coronavirus Mandatory Paid Leave

April 8, 2020 | Article

The Families First Coronavirus Response Act, which reimburses employers who are required to pay sick and family leave to employees affected by COVID-19, became effective April 1st.

COVID-19 has far reaching impacts. We’ve developed resources to help you sort through it all.

What does the Families First Coronavirus Response Act do?
The Families First Coronavirus Response Act (“Families First” or “the Act”) requires private employers with less than 500 employees and all public employers to provide paid sick and expanded family and medical leave for a broad range of coronavirus related absences.

Additional wages and related health care costs paid by private employers as a result of the Act are reimbursed through credits against payroll taxes and employee withholdings that would otherwise be deposited with the IRS.  Any excess amount of the credit will be refunded by direct payment from the U.S. Treasury Department.  Wages paid as a result of these provisions are excluded from the calculation of the employer’s share of social security (but not Medicare) taxes.

Application to Private Employers with Less than 500 Employees

Paid Sick Leave: Private employers with fewer than 500 employees are required to provide the following:

  • Two weeks (80 hours) of paid sick leave, at the employee’s regular rate, to all employees that are unable to work or telework because they are subject to a government quarantine or isolation order, have been advised by a health care provider to self-quarantine or are seeking a diagnosis or preventative care for coronavirus.
  • Two weeks (80 hours) of paid sick leave, at two-thirds (2/3) of the employee’s regular rate for employees who are unable to work or telework because they are caring for another person who is following a quarantine requirement or recommendation.
  • Two weeks (80 hours) of paid sick leave at two-thirds (2/3) of the employee’s regular rate for those caring for a son or daughter under the age of 18 whose school or place of care has been closed or whose child care provider is unavailable, due to the coronavirus.

Required paid sick leave is capped at $511 a day and $5,110 in total if the employee is the patient and at $200 per day and $2,000 in total if caring for someone else, including a child.

How does this work with sick leave I already provide?
The paid sick leave mandated by the Act is in addition to paid sick leave the employer would already provide. Paid sick leave under Families First is not considered wages for the purpose of determining the employer’s share of social security taxes but will be considered wages in determining the employer’s share of Medicare taxes. An employer may elect to exclude an employee who is a health care provider or an emergency responder from these requirements.

A tax credit equal to the amount of sick leave paid pursuant to the Act plus related health care costs may be used to offset payroll tax and withholding amounts (other than estimated income taxes) the employer would otherwise be required to deposit with the IRS. If the credit exceeds the amount required to be deposited, the excess will be paid directly by the Treasury. The gross income of the employer is increased by the amount of the credit.

Paid Family and Medical Leave: Private employers with fewer than 500 employees are also required to provide expanded family and medical leave of up to 12 weeks to any employee who cannot work or telework and has been employed for at least 30 calendar days. Leave must be provided to allow care for a son or daughter under the age of 18 whose school or place of care has been closed, or whose child care provider is unavailable due to the coronavirus.

After the first 10 days (which may consist of unpaid leave, be covered and paid as sick leave, or for which the employee uses some other form of paid leave), the employee must be paid at least two-thirds of the employee’s regular rate of pay for the number of hours the employee would otherwise normally be scheduled to work.

Are these considered wages?
Family and medical leave payments mandated by the Act are not considered wages for the purpose of determining the employer’s share of social security taxes but will be considered wages in determining the employer’s share of Medicare taxes. An employer may elect to exclude an employee who is a health care provider or an emergency responder from these requirements.

A tax credit equivalent to the tax credit provided for paid sick leave offsets the employer’s cost of complying with the paid family and medical leave requirement.

Application to Private Employers with Fewer than 50 Employees

Private employers with fewer than 50 employees may be excluded from the requirement to provide paid sick and expanded family and medical leave due to school or place of care closures or child care provider unavailability, leave if they believe that providing such leave would jeopardize the viability of the business as a going concern. An officer of such an employer wishing to be excluded should prepare a written statement declaring that:

  1. The provision of paid sick leave or expanded family and medical leave would result in the small business’s expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at a minimal capacity;
  2. The absence of the employee or employees requesting paid sick leave or expanded family and medical leave would entail a substantial risk to the financial health or operational capabilities of the small business because of their specialized skills, knowledge of the business, or responsibilities; or
  3. There are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee or employees requesting paid sick leave or expanded family and medical leave, and these labor or services are needed for the small business to operate at a minimal capacity.

Application to Private Employers with 500 or More Employees

Private employers with 500 or more employees are not covered by these changes and are not eligible for credits for wages paid for sick leave or expanded family leave.

Tax-Exempt Employers

Tax-exempt employers are subject to the same rules as private employers unless they are considered to be government employers.

Public Employers
Public employers are subject to the paid sick leave and paid family leave provisions without regard to the number of employees. Public employers include States, their political subdivisions and interstate governmental agencies (government employers), as well as any entity that is not a private entity or individual and is either engaged in commerce or an industry or an activity affecting commerce. Government employers are not eligible for the credits.

How do I determine the number of employees I have?

Different rules may apply to private employers with less than 500 or 50 employees. The number of employees is determined as of the date leave is taken by the employee. All employees are counted, including part-time and common law employees.

The definition of employer and determination of the number of employees follows the existing law and regulations in the Family and Medical Leave Act. Multiple entities may be treated as a single employer if they are joint employers or integrated employers as those terms have been interpreted under that act. In general, joint employers are two or more businesses that are simultaneously benefited by an employee’s work. Integrated employers may be found where there is common management, interrelations between operations, centralized control of labor relations and common ownership.

Tax treatment of payments under Families First

Tax Treatment of Employees
Amounts received as paid sick leave or paid family and medical leave are taxable to the individual and subject to employment taxes.

Tax Treatment of Employers
Additional wages and related health care costs paid by private employers as a result of the Act are reimbursed through credits against payroll taxes and employee withholdings that would otherwise be deposited with the IRS. Any excess amount of the credit will be refunded by direct payment from the U.S. Treasury Department. Wages paid as a result of these provisions are excluded from the calculation of the employer’s share of social security (but not Medicare) taxes. The employer must include the amount of the credit in gross income.

Tax Treatment of Self-Employed Individuals

A refundable credit is allowed to self-employed individuals for up to ten days the individual is unable to work because of events that would qualify for mandatory paid sick leave if the individual were an employee of an employer with less than 500 employees. The daily amount is equal to the net earnings from self-employment for the year divided by 260 and is subject to the same $511 or $200 per day limitation that applies in the case of an employee.

A refundable credit is allowed to self-employed individuals for up to 50 days the individual is unable to work because of events that would qualify for paid family and medical leave if the individual were an employee of an employer with less than 500 employees. The amount per day is equal to net earnings from self-employment for the year divided by 260, subject to a maximum of $200 per day.

Relation to other Coronavirus employment incentives

The Coronavirus Aid, Relief, and Economic Security (CARES) Act establishes additional employment incentives, including small business loans that can be forgiven if employment goals are met and an employee retention credit. Claiming a credit under the Families First Act does not disqualify a business from either of those incentives.

Stay up to date
As relief provisions and workforce protection measures continue to unfold in the midst of the COVID-19 pandemic, it’s important to stay informed. Knowing how these issues impact your organization will help you maintain compliance and determine best next steps.

Have a question or need help when it comes to relief provisions?

Families First includes numerous references to preexisting labor and tax law. Broad regulatory authority under the Act has been granted to both the Department of Labor and the IRS. As of this date, the two agencies have issued documents including over 150 questions and answers in addition to other guidance. Each employer should carefully consider the facts relevant to their situation and consult with experts in the tax and employee benefits area in determining their rights and obligations under the legislation.

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