On March 18, 2020 the Senate passed the Families First Coronavirus Response Act (H.R. 6201) and President Trump signed it into law shortly thereafter. The Act marks the first, and likely not the last, United States relief response to the Coronavirus outbreak. The Act makes a higher number of tax credits available to employers and self-employed individuals to assist in covering the costs resulting from the Coronavirus outbreak. The Act also grants relief in the form of paid sick leave, free Coronavirus testing, unemployment benefits, food assistance, and implements some requirements for employers with less than 500 employees.
Emergency Paid Sick Leave Act
This requires employers with less than 500 employees under the Family and Medical Leave Act to provide employees paid sick time if the employee is unable to work due to a need for leave due to:
- The employee us subject to a Federal, State, or local quarantine
- The employee has been advised by a health care provider to self-quarantine
- The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis
- The employee is caring for an individual who is subject to either paragraphs (1) or (2)
- The employee is caring for a child who’s school or place of care has been closed or unavailable due to COVID-19 precautions, or
- The employee is experiencing any other substantially similar conditions specified by the Secretary of Health and Human Services
If the employer qualifies and the employee is unable to work due to the above listed reasons then the employer must provide paid sick leave. Full-time employees are entitled to 80 hours of paid sick leave and part-time employees are entitled to paid sick leave that equal the average hours the employee works over a 2 week period. If an employee is employed by a multi-employer collective bargaining agreement then that employee is entitled to paid sick leave based on a proportional allocation of hours worked for each employer. In order to aid employers who must provide this paid sick leave, wages paid under this provision are exempt from the employer’s portion of Social Security tax and are entitled to an additional payroll tax credit equal to the amount of Medicare tax paid on those wages.
Family and Medical Leave Act Emergency Expansion
The Families First Coronavirus Response also expanded the requirements for Family and Medical Leave Act. This expansion allows for employees to receive two-thirds of their average earnings for up to 10 weeks if the employee cares for a minor child. The employee will only be eligible for this expended benefit if they are unable to work, either onsite or remotely, because of a coronavirus related closure of the minor child’s school or day care. The maximum amount that an employee may collect under this expanded benefit is $10,000. Additionally, the employee must have been employed by the employer for 30 days when the leave is requested. Any leave claimed under this expanded provision is job protected and an employer must return the employee to the same or equivalent position upon a return to work.
Employers who pay wages under this provision are exempt from their portion of Social Security tax and an additional payroll tax credit is allowed for in the amount of Medicare tax paid on those wages, similar to the emergency paid sick leave benefits paid. Also, the U.S. Department of Labor is allowed to issue additional regulations to exempt employers with fewer than 50 employees, however no additional regulations have been issued at this time.
Available Tax Credits for Employers
In order to counteract the significant increase in costs that employers, the Act created the following tax credits:
- A refundable tax credit for employers equal to 100 percent of qualified family leave wages required to be paid by the employer for each calendar quarter. The tax credit is allowed against the tax imposed by section 3111(a) (the employer portion of Social Security taxes). The amount of qualified family leave wages taken into account for each employee is capped at $200 per day and $10,000 for all calendar quarters. If the credit exceeds the employer’s total liability under section 3111(a) for all employees for any calendar quarter, the excess credit is refundable to the employer;
- A refundable tax credit for employers equal to 100 percent of qualified paid sick leave wages paid by an employer for each calendar quarter. The tax credit is allowed against the tax imposed by section 3111(a) of the Internal Revenue Code (the employer portion of Social Security taxes); and
- For both of the above credits, an employer will be required to increase their gross income for the taxable year by the amount of the credit received
Self-employed individuals or employees who are a part of the gig-economy are allowed to claim a credit against their income taxes related to sick or family leave. The credit covers 100% of self-employed individuals’ daily self-employment income, but will be reduced to 67% if an individual is taking care of a child whose school is closed. The per-day amount is limited to the lesser of an individual’s average daily self-employment income, or $511 per day if only caring for themselves, or $200 if caring for a minor child. If related to sick leave the number of eligible days is limited to 10, and if related to family leave the number of eligible days is limited to 50. The U.S. Department of Treasury will be issuing further guidance to help self-employed individuals understand what documentation will need to be provided in order to claim the credit.