Tax Credits for Employers Under the Families First Coronavirus Response Act to Offset the Cost of Expanded Sick Leave

On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (the Act). Among other things, the Act provides tax credits to businesses with fewer than 500 employees to offset the cost of providing expanded paid sick leave for COVID-19 related reasons. On March 20, federal agencies provided further guidance on the credits available to qualifying employers. Two fully refundable credits are available to qualifying employers: the Paid Sick Leave Credit and the Child Care Leave Credit.

The Paid Sick Leave Credit

The Paid Sick Leave Credit is comprised of two tiers. The first tier provides a credit for up to 10 days (80 hours) of paid sick leave at the eligible employee’s regular rate of pay, with a maximum of $511 per day and $5,110 in the aggregate. This tier applies to an employee: (1) under coronavirus quarantine (including health provider-advised self-quarantine); or (2) experiencing coronavirus symptoms and seeking a medical diagnosis. The second tier provides a credit for up to 10 days (80 hours) of paid sick leave at two-thirds of an eligible employee’s regular rate of pay, with a maximum of $200 per day and $2,000 in the aggregate. This tier applies to employees: (1) caring for someone with COVID-19 (including an individual subject to quarantine or self-quarantine); or (2) caring for a child whose school or child care facility is closed (or whose child care provider is unavailable due to coronavirus). Employers may include the cost of maintaining health insurance coverage for the eligible employee during the leave period in the calculation of the credit.

The Child Care Leave Credit

The Child Care Leave Credit applies to paid leave for employees unable to work due to school or childcare facility closures (or a childcare provider’s coronavirus-related unavailability). Employers may claim a credit for up to 10 weeks of paid leave for eligible employees. The credit is calculated at two-thirds of an employee’s regular rate of pay, with a maximum of $200 per day and $10,000 in the aggregate per employee. Like the Paid Sick Leave Credit, the employer’s cost of maintaining health insurance coverage for the employee during the leave period is includible in the credit’s calculation.

Claiming the Credits

Employers may claim the credits by retaining payroll taxes withheld from employee wages, instead of depositing those funds with the IRS. Employers may access a qualifying employee’s portion of Medicare and Social Security taxes, as well as federal income tax withheld. The employer’s share of Social Security and Medicare taxes (irrespective of an individual employee’s qualification) are also available for retention. If the amount of the credit exceeds available payroll taxes, the employer may request a refund. The IRS anticipates issuing additional guidance on refund requests this week and ultimately expects to process refund requests in two weeks or less.

Businesses with fewer than 50 employees may request an exemption from the leave requirements of the Act. An exemption is available where compliance with the Act’s provisions would jeopardize the viability of the business as a going concern. Clarification and guidance on the standard for exemption are forthcoming from the Department of Labor.

We will continue to update you about this and other major federal and state measures addressing the ever-developing COVID-19 pandemic. For additional information on the Act, read our detailed overview here, or contact McNeelyLaw’s attorneys by visiting www.mcneelylaw.com or calling our office at 317-825-5110.

This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.