Type: Law Bulletins
Date: 03/23/2020

Coronavirus Legislation Tax Credits: How to Fund Required Emergency Family and Sick Leave Pay

Announcement from the Department of Treasury, the Department of Labor and the Internal Revenue Service

The Families First Coronavirus Response Act (FFCRA) mandated that employers with fewer than 500 employees provide emergency family leave and emergency paid sick leave for certain, specified coronavirus-related events/circumstances. On March 20, 2020, the Department of Labor, the Internal Revenue Service (IRS), and the Department of the Treasury published informal guidance about the tax credits for employers who provide paid sick leave under FFCRA. 

How the emergency sick leave and family leave payments can be funded:

  • The FFCRA created the refundable paid sick leave credit and the paid child care leave credit for eligible employers.
  • Eligible employers who pay qualifying emergency sick or emergency child care leave can retain an amount of the payroll taxes — they would normally pay over to the IRS — equal to the amount of qualifying emergency pay.
  • Payroll taxes that can be retained: withheld federal income taxes; employee share of Social Security and Medicare taxes; and employer share of Social Security and Medicare taxes of those employees who received emergency pay.
  • If there are insufficient payroll taxes to cover the cost of qualified sick and child care leave paid to the employees, employers will be able to request an accelerated payment from the IRS.
  • The IRS expects to process these requests in two weeks or less.

The guidance also includes these 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.

Equivalent child-care leave and sick leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.

Further guidance forthcoming

The March 20, 2020 update also stated that additional guidance was forthcoming on the implementation of the new paid sick leave provisions, including enforcement and possible limited exceptions for small employers. 

Please visit our COVID-19 Toolkit for all of Taft’s updates on the coronavirus.

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