Families First Act Employer Paid Leave Benefits: The IRS, DOL, Treasury Plan For Implementing Tax Credits
March 23, 2020
As the April 2, 2020, effective date of the Families First Coronavirus Response Act (“Families First Act” or the “Act”) draws near, the U.S. Treasury Department (“Treasury”), Internal Revenue Service (“IRS”) and Department of Labor (“Labor”) jointly announced plans for employers to swiftly recover 100% of the cost of providing coronavirus-related paid emergency sick leave and paid public health emergency leave to employees.
Details of this announcement can be found here: https://www.irs.gov/newsroom/treasury-irs-and-labor-announce-plan-to-implement-coronavirus-related-paid-leave-for-workers-and-tax-credits-for-small-and-midsize-businesses-to-swiftly-recover-the-cost-of-providing-coronavirus.
Recap of Families First Act
As we informed you in our prior e-alert on the Families First Act (found here), the Act provides employees of covered employers (i.e., private employers with less than 500 employees) with two weeks (up to 80 hours) of paid emergency sick leave and 12 weeks of public health emergency leave, 10 weeks of which must be paid.
The two weeks of paid emergency sick leave benefit is paid at 100% of the employee’s pay (up to the legally specified limit) when the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis. The paid emergency sick leave benefit is paid at 2/3 the employee’s pay (up to the legally specified limit) when the employee is unable to work because of a need to care for a qualified individual subject to quarantine, to care for a child whose school is closed or care provider is unavailable for reasons related to COVID-19, and/or the employee is experiencing substantially similar conditions, as specified by the U.S. Department of Health and Human Services. An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional 12 weeks of public health emergency leave under the expanded family and medical leave portion of the Act, 10 weeks of which must be paid at 2/3 the employee’s pay (up to the legally specified limit).
For an employee who receives paid emergency sick leave as a result of being unable to work because of coronavirus quarantine or self-quarantine or having coronavirus symptoms and seeking a medical diagnosis, eligible employers may receive a refundable sick leave tax credit for the full amount paid for the emergency paid sick leave (i.e. up to $511 per day and $5,110 in the aggregate, for a total of 10 days).
For an employee who receives paid emergency sick leave to care for someone with coronavirus, or to care for a child because the child’s school or child care facility is closed, or the child care provider is unavailable due to the coronavirus, eligible employers may claim a tax credit for the full amount paid for this emergency paid sick leave (two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days).
In addition to the sick leave credit, for an employee who is receiving paid public health emergency leave due to an inability to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the coronavirus, eligible employers may receive a refundable child care leave tax credit. This tax credit is equal to two-thirds of the employee’s regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying public health emergency leave can be counted towards the child care leave tax credit. Eligible employers are entitled to an additional tax credit based on costs to maintain health insurance coverage for the eligible employee during the paid public health emergency leave period.
IRS Announces that Covered Employers Can Immediately Begin Taking Advantage of Payroll Tax Credits
The IRS announcement, issued last Friday, clarified that covered employers (businesses with fewer than 500 employees required to provide leave under the Act) can begin taking advantage of the Act’s two new refundable payroll tax credits as soon as the Families First Act becomes effective on April 2, 2020.
As explained in the IRS announcement, when employers pay their employees, they are required to withhold from their employees’ paychecks federal income taxes and the employees’ share of Social Security and Medicare taxes. The employers then are required to deposit these federal taxes, along with the employer’s share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns with the IRS. However, under guidance the IRS is expected to release this week, eligible employers who pay qualifying sick or child care leave provided by the Families First Act can “retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.”
The IRS announcement specified that the “payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.”
If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able to file a request for an accelerated payment from the IRS. According to the IRS announcement: “The IRS expects to process these requests in two weeks or less.”
Stated differently, eligible employers may use any taxes held for payment on federal income, social security and Medicare taxes to pay employees taking paid leave under the Families First Act. This allows employers to use funds from payroll and income taxes they withhold or pay on behalf of all employees, not just those who receive paid leave under the Families First Act.
The IRS provided the following examples:
- If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.
- 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 in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.
U.S. Department of Labor to Release Details About Families First Act’s Small Business Exemption and to Take Non-Enforcement Position for First Thirty Days of Act
In the same announcement, the Department of Labor (“DOL”) stated that it will provide emergency guidance and rulemaking to clarify the circumstances that exempt small businesses (i.e., those with fewer than 50 employees) from the Families First Act’s leave requirements relating to school closings or unavailability of child care where the requirements would jeopardize the ability of the business to continue. According to the DOL, the exemption will be “available on the basis of simple and clear criteria in circumstances involving jeopardy to the viability of an employer’s business as a going concern.”
The DOL also announced that it is “issuing a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the Act. Under this policy, the DOL will not bring an enforcement action against any employer for violations of the Act during the first 30 days after the Act takes effect so long as the employer has acted reasonably and in good faith to comply with the Act. Separately, the DOL, on its Wage and Hour Division web page, explained that, for purposes of this non-enforcement position, “good faith” exists when violations are remedied and the employee is made whole as soon as practicable by the employer, the violations were not willful, and the Department receives a “written commitment” from the employer to comply with the Act in the future. See: https://www.dol.gov/agencies/whd/pandemic/ffcra-employer-paid-leave
For further information about the above cases and recently enacted legislation, please contact your SRC employment attorney.
|The contents of this newsletter are intended for general informational purposes only and should not be construed as legal advice or a legal opinion. You are advised to consult an attorney about any specific legal question.|