Tax Credits Available for Paid Sick Leave During COVID-19
Tax credits are a large part of The Families First COVID-19 Response Act, which President Trump signed into law March 18, 2020, to assist businesses with the revised paid sick, family and medical leave provisions. The Ericksen Krentel team has reviewed the Act and has compiled a summary below.
The Act provides paid sick leave and expanded family and medical leave for COVID-19 related reasons and created the refundable paid sick leave credit and the paid childcare leave credit for eligible employers. Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act. Equivalent credits are available to self-employed individuals based on similar circumstances.
An immediate dollar-for-dollar tax offset against payroll taxes will be provided, and the IRS has committed to sending a refund as quickly as possible. Employers receive 100% reimbursement for paid leave pursuant to the Act. To take immediate advantage of the credits, businesses can retain and access funds they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released soon.
As a note, employers may elect to not have the credits apply, and these credits do not apply to any governmental agency. These credits only apply to wages paid by eligible employers between March 18, 2020 and December 31, 2020.
The Act also allows employers to exclude health care providers or emergency responders from Public Health Emergency Leave coverage.
- Non-Enforcement Period
- Small Businesses
- Paid Leave
- Paid Sick Leave Credit
- Childcare Leave Credit
- Prompt Payment for Cost of Providing Leave
- Self-Employed Individuals
The U.S. Department of Labor (DOL) will issue 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 enforce action against any employer violating the Act as long as the employer has acted reasonably and in good faith to comply with the Act. The DOL will instead focus on compliance assistance during the 30-day period.
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Small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or childcare unavailability where the requirements would jeopardize the ability of the business to continue.
The exemption will be available on the basis of criteria that make it available in circumstances involving jeopardy to the viability of an employer’s business as a going concern. The U.S. Department of Labor is expected to soon provide emergency guidance and rulemaking to clearly articulate this standard.
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Employees of eligible employers can receive two weeks (up to 80 hours) of paid sick leave at 100% of the employee’s pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis.
An employee who is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or childcare 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 can receive two weeks (up to 80 hours) of paid sick leave at two-thirds the employee’s pay.
An employee who is unable to work because they have to care for a child whose school is closed, or childcare provider is unavailable for reasons related to COVID-19, may, in some instances, receive up to an additional 10 weeks of expanded paid family and medical leave at two-thirds the employee’s pay.
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Eligible employers may receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in total, for 10 days for an employee who is unable to work because of COVID-19 quarantine or self-quarantine or has COVID-19 symptoms and is seeking a medical diagnosis.
For an employee who is caring for someone with COVID-19 , or is caring for a child because the child’s school or childcare facility is closed, or the childcare provider is unavailable because of the COVID-19 , eligible employers may claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in total, for up to 10 days. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
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Eligible employers may receive a refundable childcare leave credit in addition to the sick leave credit for an employee who is unable to work because they need to care for a child whose school or childcare facility is closed or whose childcare provider is unavailable. This credit is equal to two-thirds of the employee’s regular pay, capped at $200 per day or $10,000 in total. Up to 10 weeks of qualifying leave can be counted toward the childcare leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
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When employers pay their employees, they are required to withhold federal income taxes and the employees’ share of Social Security and Medicare taxes from their paycheck. Employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns (Form 941 series) with the IRS
Eligible employers who pay qualifying sick or childcare leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and childcare leave that they paid, rather than deposit them with the IRS.
The payroll taxes 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 childcare leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced this week.
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If an eligible employer paid $5,000 in emergency sick leave and is otherwise required to deposit $8,000 in payroll taxes, the employer would only be required 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 to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.
Equivalent childcare 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.
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A few notes regarding payroll credits for self-employed individuals that apply to both sick leave and paid family leave under the Act.
- This only applies to wages paid beginning March 18, 2020, and ending December 31, 2020.
- The Act provides a refundable tax credit equal to 100 percent of qualified paid sick leave wages.
- The average daily self-employment income is an amount equal to the net earnings from self-employment income for the taxable year divided by 260.
- Qualified paid sick leave wages is equal to the number of days during the taxable year (but not more than the applicable number of days) the individual is unable to work for a reason with respect to which such individual would be entitled to receive sick leave, multiplied by the lesser of:
- $200 ($511 in the case of any day of paid sick time for an individual who is subject to a quarantine or are seeking diagnosis or treatment with respect to COVID-19), or
- 67% (100% for an individual who is subject to a quarantine or are seeking diagnosis or treatment with respect to COVID-19) of the average daily self-employment income of the individual for the taxable year.
- Eligible self-employed individuals are those who regularly conduct any trade or business and would be entitled to receive paid leave during the taxable year pursuant to the Emergency Family and Medical Leave Expansion Act if they were an employee of an employer (other than himself or herself).
- No credit will be allowed without the proper documentation.
Any refund due from the above credits will be treated in the same manner as a refund due from a credit provision pursuant to the Emergency Paid Sick Leave Act if the individual were an employee of an employer (other than himself or herself).
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The information in this article is current through March 20, 2020. However, given the fast-changing nature of the COVID-19 pandemic, we acknowledge facts will change. We will continue to provide updates as soon as they become available.
As questions or concerns arise, we ask that you contact us so we can address them as quickly as possible to ensure we continue to meet your needs. As a reminder, you can always monitor our COVID-19 Updates webpage by clicking here for the latest or monitoring our accounts on LinkedIn, Twitter or Facebook.
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About Ericksen Krentel
Ericksen Krentel CPAs and Consultants, founded in New Orleans, Louisiana in 1960 with offices in New Orleans and Mandeville, believes that serving as the clients’ most trusted adviser is grounded in going beyond the numbers.
That includes helping clients achieve their business and personal financial goals by providing innovative and exceptional services in the following areas: audit and assurance services, tax compliance and planning, outsourced CFO services and business valuations for a variety of industries; employee benefit plan audits; fraud and forensic accounting; business planning; IT consulting; loss calculations; and estate planning.
Learn more at www.ericksenkrentel.com.