The recently passed Families First Coronavirus Response Act (the Act) contains various new programs and requirements in response to the novel coronavirus (COVID-19). The Act created two new tax credits related to the new paid leave requirements instituted by the Act. Under the Act, and subject to certain rules and limitations, employers with fewer than 500 employees are required to provide new paid leave benefits related to: (1) family leave related to the COVID-19 emergency, and (2) emergency paid sick leave related to the COVID-19 emergency. The details of these new benefits are outside the scope of this Tax Update, and you should consult your HR representative(s) to discuss the details. This Tax Update provides information on the new tax credits available to employers and self-employed individuals related to these new benefits.
Required Paid Family Leave
Subject to certain limitations, the Act establishes a new employer payroll tax credit equal to 100 percent of the wages paid by employers under the new COVID-19 family leave benefit. The credit is generally available for up to $200 in wages for each day an employee receives this benefit. A maximum of $10,000 in wages per employee is eligible for this credit. The amount of the credit is increased by the Medicare tax imposed on the family leave wages for which the credit is allowed. The credit would apply against the employer portion of the 6.2 percent Section 3111(a) Old-Age, Survivors, and Disability Insurance (OASDI) tax or Section 3221(a) Tier I Railroad Retirement Act (RRA) excise tax. Wages paid under this benefit are not considered to be wages for the purpose of the Section 3111(a) OASDI tax or the Section 3221(a) Tier 1 RRA excise tax. If this credit is claimed, an employer’s ultimate payroll tax expense deducted on its federal tax return cannot include the amount of the credit claimed. The credit can be increased by certain qualified health plan expenses of an employer that are allocable to the qualified wages for which the credit is allowed.
A similar credit is also available for eligible self-employed individuals, who would receive a refundable credit against income taxes equal to qualified family leave equivalent amounts.
Required Paid Sick Leave
Subject to certain limitations, the Act establishes a new employer payroll tax credit equal to 100 percent of the qualified sick leave wages paid by employers under the new COVID-19 paid sick leave benefit. The credit is generally available for: (1) up to $511 in wages for each day an employee receives qualified sick leave pay for workers who are quarantined or self-quarantined or who have COVID-19, and (2) up to $200 in wages each day for other workers for each day qualified sick leave pay is paid. The credit is generally available for up to ten days per calendar quarter. The amount of the credit is increased by the Medicare tax imposed on the paid sick leave wages for which the credit is allowed. The credit would apply against the employer portion of the 6.2 percent Sec 3111(a) OASDI tax or Sec 3221(a) Tier I RRA excise tax. Wages paid under this benefit are not considered to be wages for the purpose of the Sec 3111(a) OASDI tax or the Sec 3221(a) Tier 1 RRA excise tax. If this credit is claimed, an employer’s ultimate payroll tax expense deducted on its federal tax return cannot include the amount of the credit claimed. The credit can be increased by certain qualified health plan expenses of an employer that are allocable to the qualified wages for which the credit is allowed.
A similar credit is also available for eligible self-employed individuals, who would receive a refundable credit against income taxes equal to qualified sick leave equivalent amounts.
On March 20, 2020, the Department of the Treasury, Internal Revenue Service, and Department of Labor jointly announced that employers can begin taking advantage of these new credits, even though the effective date of the Act is still unclear. It is expected that the credits will be claimed on an employer’s quarterly payroll tax return and used to reduce the amount of tax remitted with the tax return and if the credits exceed the overall payment due, the excess will be refunded.
If you wish to discuss any of the matters in the attached update in more detail, please contact Chuck Marston, Rich Pacella, or Danelle Stewart at cmarston@srsnodgrass.com, rpacella@srsnodgrass.com, or dstewart@srsnodgrass.com or 724-934-0344.
Posted 3/25/20
