On March 18, phase two of the Coronavirus Economic Response package was signed into law. The Families First Coronavirus Response Act (HR 6201) extends paid sick leave to employees all over the country affected by the pandemic (“COVID-19”). The paid leave is paid for by the federal government and funneled to the employees through the employer. Eligible employers who pay qualifying sick and child care leave will be able to get the money for the paid leave either by retaining an amount of the payroll taxes equal to the amount of qualifying and children leave, or file for an advance by filling out a streamlined claim form.
Example 1: If an eligible employer paid $3,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, the employer could use up to $3,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments.
Example 2: If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000 via a streamlined claim form.
The bill compensates employers 100% for providing paid leave according to the Act to employees in the form of the following three refundable tax credits:
The Emergency Federal Family and Medical Leave Expansion Act (EFMLEA)
The Act expands FMLA and provides a credit for qualified family leave (EFMLEA) for pay for workers unable to work (or telecommute) due to a need to care for a child of an employee if the child’s school or place of care has been closed, or if the child-care provider is unavailable, due to a coronavirus. Qualified family leave (EFMLEA) is paid to an employee at a rate of pay based upon the lesser of 67% of their pay, or $200 per day. The Act provides 12 weeks of job-protected leave, of which 10 weeks is paid. After two weeks of unpaid leave, the employer must provide a benefit of paid leave equal to at least 2/3 of their regular pay, capped at $200 per day and $10,000 per employee. Qualifying employees are those who have been on the job for at least 30 calendar days.
Emergency Paid Sick Leave (SELF)
SELF provides two weeks of pay at 100% of employee’s regular pay rate subject to limits. The Act provides for a credit for qualified sick leave (SELF) for pay for workers:
- subject to federal, state, or local quarantine or isolation order related to COVID-19;
- advised by a health care provider to self-quarantine due to concerns associated with COVID-19; or
- experiencing symptoms of COVID-19 and seeking a medical diagnosis.
Qualified sick leave (SELF) is paid at the employee’s regular rate capped at $511 per day for up to two weeks (80 hours). The qualified paid sick leave wages for SELF could be as much as $5,110 per employee. The emergency paid sick time must be available for immediate use by the employee, regardless of how long the employer has employed the employee.
Emergency Paid Sick Leave (OTHERS)
OTHERS provides two weeks of pay at a rate of 2/3 of regular pay subject to limits. The Act provides for a credit for qualified sick leave (OTHERS) for workers:
- caring for an individual who is subject to a quarantine or isolation order or has been advised to self-quarantine;
- caring for the employee’s child if the child’s school or place of care has been closed, or the child care provider of the child is unavailable, due to COVID-19 precautions; or
- with any other substantially similar conditions as specified by Health and Human Services.
Qualified sick leave (OTHERS) is paid at 2/3rd of the employee’s regular pay, capped at $200 per day for up to two weeks (80 hours). The qualified paid sick leave wages for OTHERS are capped at $2,000 per employee. The emergency paid sick time must be available for immediate use by the employee, regardless of how long the employer has employed the employee.
The following details further facts about the various paid leave credits:
- Credits apply to employers (businesses and tax-exempt organizations) with fewer than 500 employees.
- Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed, or child care is unavailable in cases where the viability of the business is threatened as a going concern. More guidance will be provided by the Department of Labor to explain this standard clearly.
- Reimburses the employers, via a tax credit, for qualifying paid leave paid to qualifying employees
- For employers, the leave tax credit is claimed by employers quarterly, based on their federal payroll tax returns. Employers can instead seek an expedited advance from the IRS by submitting a streamlined claim form. If the credit exceeds the employer’s payroll tax liability for all employees for any calendar quarter, the excess credit is refundable to the employer.
- The credit is also available to self-employed individuals, and the paid leave credits are available against the individual’s federal income tax.
- Credits are temporary and apply beginning on April 2, 2020, and sunset on December 31, 2020.
- Special rules apply for calculating part-time employee hours.
- An employee may first use the emergency paid sick time for the purposes described in the Act.
- An employer may not require an employee to use other paid leave provided by the employer to the employee before the employee uses the emergency paid sick time.
- Qualifying paid leave would include certain health care expenses of the employer.
To see a visual representation of the tax credits provided under the Families First act, please view or download our COVID-19 Families First Paid Leave Federal Tax Credits Chart.
Our CRI professionals are monitoring the changes in this economic response package daily. For questions on how to claim your credits, to learn if you qualify, or any other concern, please contact your advisor.