Tax Credits for Paid Sick and Family Leave Small and Midsize Businesses

The Families First Coronavirus Response Act (FFCRA), signed by President Trump on March 18, 2020, provides small and midsize employers refundable tax credits that reimburse them, dollar-for-dollar, for the cost of providing paid sick and family leave wages to their employees for leave related to COVID-19.
The FFCRA gives businesses with fewer than 500 employees (Eligible Employers) funds to provide employees with paid sick and family and medical leave for reasons related to COVID-19, either for the employee’s own health needs or care for family members. Workers may receive up to 80 hours of paid sick leave for their own health needs or care for others and up to an additional ten weeks of paid family leave to care for a child whose school or place of care is closed or child care provider is closed or unavailable due to COVID-19 precautions. The FFCRA covers costs of this paid leave by providing small businesses with refundable tax credits. Certain self-employed individuals in similar circumstances are entitled to similar credits.
COVID-19-Related Tax Credits for Small and Midsize Businesses
The FFCRA requires employers to provide paid leave through two separate provisions: (i) the Emergency Paid Sick Leave Act (EPSLA), which entitles workers to up to 80 hours of paid sick time when they are unable to work for certain reasons related to COVID-19, and (ii) the Emergency Family and Medical Leave Expansion Act (Expanded FMLA), which entitles workers to certain paid family and medical leave. The FFCRA provides that employers 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 these periods of time during which employees are unable to work (which for purposes of these rules, includes telework).  Certain self-employed persons in similar circumstances are entitled to similar credits.
The following is an overview of FFCRA’s refundable tax credit provisions and information regarding the requirements, limitations, and application of the paid leave credits.  The Wage and Hour Division of the Department of Labor (DOL) administers the EPSLA and the Expanded FMLA and posted FAQs and relevant information about the paid leave requirements at the Department of Labor’s Families First Coronavirus Response Act: Questions and Answers.
Paid Sick Leave Refundable Credit
The EPSLA requires Eligible Employers to provide employees with paid sick leave if the employee is unable to work, including telework, due to any of the following:

  • 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 child care provider of such child is unavailable, due to COVID-19 precautions; and
  • the employee is experiencing any other substantially similar condition specified by the U.S. Department of Health and Human Services.

An employee who is unable to work for reasons due to a COVID-19 circumstance described in (1), (2) or (3) above is entitled to paid sick leave for up to two weeks (up to 80 hours) at the employee’s regular rate of pay, or, if higher, the Federal minimum wage or any applicable State or local minimum wage, up to $511 per day and $5,110 in the aggregate.
An employee who is unable to work due to a COVID-19 circumstance described in (4), (5) or (6) above is entitled to paid sick leave for up to two weeks (up to 80 hours) at 2/3 the employee’s regular rate of pay or, if higher, the Federal minimum wage or any applicable State or local minimum wage, up to $200 per day and $2,000 in the aggregate.
The Eligible Employer is entitled to a fully refundable tax credit equal to the required paid sick leave.  This tax credit also includes the Eligible Employer’s share of Medicare tax imposed on those wages and its allocable cost of maintaining health insurance coverage for the employee during the sick leave period (qualified health plan expenses). The Eligible Employer is not subject to the employer portion of social security tax imposed on those wages.
The Eligible Employer is entitled to a fully refundable tax credit equal to the required paid sick leave.  This tax credit also includes the Eligible Employer’s share of Medicare tax imposed on those wages and its allocable cost of maintaining health insurance coverage for the employee during the sick leave period (qualified health plan expenses). The Eligible Employer is not subject to the employer portion of social security tax imposed on those wages.
Paid Family Leave Refundable Credit
In addition to the paid sick leave credit, under the expanded FMLA, an employee who is unable to work, including telework, because of a need to care for a child whose school or place of care is closed or whose child care provider is unavailable due to COVID-19, as described in (5) above, is entitled to paid family and medical leave 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).  This tax credit also includes the Eligible Employer’s share of Medicare tax imposed on those wages and 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.
For more details, see the IRS’ website. If you have tax-related questions, please call us.

Need Guidance and Help?
If you need advice, give us a call and we will be happy to discuss your situation.