On Friday, March 20, 2020, the Internal Revenue Service (IRS), US Department of Labor (DOL), and US Department of the Treasury published a joint news release (Release) regarding tax credits available to employers who will be required to provide paid sick and family care leave for COVID-19-related purposes under the Families First Coronavirus Response Act (FFCRA). As explained in detail here, the FFCRA mandates employer-paid sick leave and partially-paid family care leave, offset by tax credits. The FFCRA also includes federal funding and waivers for free COVID-19 testing, food and nutrition assistance programs, and state unemployment insurance programs.
Published only two days after the FFCRA was signed into law, the Release further reflects the unprecedented steps being undertaken by the US government in response to the COVID-19 epidemic. At its core, the Release explains that employers covered by the leave provisions of the FFCRA will receive new, refundable payroll tax credits "designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees." It also provides additional details about the small employer exemption to the FFCRA leave requirements and the DOL's enforcement plans.
To help you prepare, the below FAQ summarizes the key provisions of the Release.
1. What portion of the costs associated with an employer's FFCRA leave obligations will be covered by the tax credits?
The Release provides that the entire amount of an employer's paid leave obligations required by the FFCRA will be eligible for a refundable tax credit.
More specifically, tracking the employer's leave obligations under the FFCRA, employers will receive a tax credit for:
- paid sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, when leave is provided for an employee’s own well-being;
- paid sick leave at two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, when leave is provided for family or child care;
- paid COVID-19 child care leave equal to two-thirds of the employee’s regular pay, capped at $200 per day or $10,000 in the aggregate; and
- the costs to maintain health insurance coverage for the eligible employee during FFCRA-leave periods.
2. How Will the Tax Credits Work?
The tax credits can be taken by an eligible employer retaining federal employment taxes otherwise required to be deposited with the IRS. This includes payments the employer would otherwise make not only for its own share of Social Security and Medicare taxes, but also the amounts withheld from employees' paychecks for federal income taxes and the employees' shares of Social Security and Medicare taxes. In other words, employers will keep and be able to access amounts withheld from its employees' paychecks that reflect the employees' own tax obligations to offset the employer's new leave costs, a step that Congress and the IRS have been loath to employ previously. Importantly, the employer can retain the payments from payroll tax amounts due the IRS for any of its employees, not just those associated with employees for whom the employer provided paid FFCRA leave.
Employers also will not face certain payroll tax obligations on the leave payments themselves.
3. What about self-employed individuals?
Equivalent FFCRA leave credit amounts are available to self-employed individuals under similar circumstances. These credits can be claimed on individual income tax returns and reflected in reduced estimated tax payments.
4. What If the payroll taxes owed are less than the employer's FFCRA leave costs?
If there are not sufficient payroll taxes to cover the employer's full cost of providing FFCRA leave, employers will be able file a request for an accelerated refund payment from the IRS. The IRS will be publishing additional details on this process during the week of March 23rd, but the Release states that the IRS expects to be able to process these requests in two weeks or less.
5. What about the costs of maintaining health insurance for employees during the FFCRA leave period?
The Release explicitly states that health insurance costs are included in the credit. Employers are entitled to an additional tax credit for the cost of maintaining health insurance coverage for eligible employees during their FFCRA leave periods.
6. I am a small business planning to seek an exemption pursuant to the FFCRA. What does the Release say about that?
The Release gives small businesses some insight into the exemption process for family leave, stating that employers with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or child care unavailability where those requirements would jeopardize the ability of the business to continue. Exemption requests will be subject "simple and clear criteria that make it available in circumstances involving jeopardy to the viability of an employer’s business as a going concern." The Department of Labor will be providing guidance and rulemaking to further articulate this standard.
The Release does not refer to whether and under what circumstances the DOL will allow exemptions to the paid sick leave requirements for employers with fewer than 50 employees. Nonetheless, we still expect regulations are forthcoming that will establish those standards, as permitted by the FFCRA.
7. When will the DOL begin enforcement actions related to the FFCRA?
The Release provides that the DOL will grant a 30-day grace period on enforcement to provide time for employers to come into compliance with the FFCRA. During this period, the DOL will not bring an enforcement action against any employer for violations of the FFCRA so long as the employer has acted reasonably and in good faith to comply with the FFCRA, and the DOL will instead focus on compliance assistance. The DOL will be issuing a temporary non-enforcement policy providing further detail.