Posted 3 years ago - by Payroll Systems

COVID-19-Related Tax Credits for Small and Midsize Businesses

The Families First Coronavirus Response Act (FFCRA) requires employers to offer paid leave to their employees through these two separate provisions:

• The Emergency Paid Sick Leave Act (EPSLA)

Workers are entitled to up to 80 hours of paid sick time when they are unable to work for certain reasons related to COVID-19.

• The Emergency Family and Medical Leave Expansion Act (Expanded FMLA)

Workers are entitled to certain paid family and medical leave.

Under the FFCRA provision, employers who are subject to the EPSLA and the Expanded FMLA paid leave requirements are entitled to fully refundable tax credits to cover the cost of the leave required to be paid for the periods of time when employees are not able to work. (For purposes of these rules, work includes work-from-home scenarios.)

Certain self-employed persons in similar circumstances are entitled to similar credits.

Sections 7001 and 7003 of the FFCRA provide that eligible employers are entitled to refundable tax credits for qualified leave wages—i.e., qualified sick leave wages and qualified family leave wages.

The refundable tax credits are increased by the following:

• The qualified health plan expenses allocable to the qualified leave wages
• The eligible employer’s share of Medicare tax on the qualified leave wages

Which employers are eligible for refundable tax credits?

• Businesses and tax-exempt organizations with fewer than 500 employees that are required to provide paid sick leave under the EPSLA and to provide paid family leave under the Expanded FMLA

Note: Although most government employers are required by the FFCRA to provide paid leave, they are not entitled to the tax credits for this leave.

• Self-employed individuals

Sections 7002 and 7004 of the FFCRA provide that self-employed individuals are entitled to equivalent credits based on similar circumstances in which the individual is not able to work. The refundable tax credits apply to qualified sick leave wages and qualified family leave wages paid for certain periods when the individual is unable to work within the period beginning April 1, 2020, and ending December 31, 2020, which is the period used to determine credits for qualified sick leave equivalent amounts and qualified family leave equivalent amounts for certain self-employed individuals.

Overview of refundable credit for paid sick leave

Eligible employers are required to provide paid sick leave if the employee (office-based or telecommuting) is unable to work under any of the following circumstances:

• The employee is under a Federal, State, or local quarantine or isolation order related to COVID-19
• The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19
• The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis
• The employee is caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19, or has been advised by a health care provider to self-quarantine due to concerns related to COVID-19
• The employee is caring for the child of such employee if the school or place of care of the child has been closed, or the childcare provider of such child is unavailable, due to COVID–19 precautions
• The employee is experiencing any other substantially similar condition specified by the U.S. Department of Health and Human Services

Overview of refundable credit for paid family leave

The Expanded FMLA provides that an employee is entitled to paid family and medical leave if they are not able to work (including telecommute) because they need to care for a child whose school or place of care is closed or whose childcare provider is unavailable due to COVID-19.

The paid leave is equal to two-thirds of the employee’s regular pay, up to $200 per day and $10,000 in the aggregate.

Up to ten weeks of qualifying leave can be counted towards the family leave credit.

The eligible employer is entitled to a fully refundable tax credit equal to the required paid family and medical leave (qualified family leave wages), which also includes

• The eligible employer’s share of Medicare tax imposed on those wages
• Its cost of maintaining health insurance coverage for the employee during the family leave period (qualified health plan expenses)

The eligible employer is not subject to the employer portion of social security tax imposed on those wages.

Note: Eligible employers who are subject to the Railroad Retirement Tax Act are not subject to either social security tax or Medicare tax on the qualified family leave wages; and they do not get a credit for Medicare tax.

This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.