March 24, 2020 – President Trump has signed the Families First Coronavirus Act (HR 6201, the “Act”) intended to ease the economic consequences stemming from the novel coronavirus disease (COVID-19) outbreak by providing family and medical leave, and sick leave, to employees and providing tax credits to employers and the self-employed providing the leave. Here are some details.
Emergency paid sick time – This is designed to be utilized first. Under the Emergency Paid Sick Leave Act (EPSLA), private employers with fewer than 500 employees, and public employers of any size, must provide 80 hours of paid sick time to full-time employees who are unable to work (or telework) for specified virus-related reasons. Part-time employees are entitled to sick time based on their average hours worked over a two-week period. This amount is immediately available regardless of the employee’s length of employment. The maximum amounts payable vary based on the reason for absence. Employees who are (1) subject to a quarantine or isolation order, (2) advised by a health provider to self-quarantine, or (3) experiencing symptoms and seeking diagnosis, must be compensated at their regular rate, up to a maximum of $511 per day ($5,110 total). Employees caring for an individual described in category (1), (2), or (3), caring for a son or daughter whose school is closed or child care provider is unavailable, or experiencing a “substantially similar condition” specified by the government must receive two-thirds of their regular rate, up to a maximum of $200 per day ($2,000 total). Employers cannot require employees to find a replacement worker or use other sick leave before this sick time. Employers may exclude health care providers and emergency responders, and the Department of Labor (DOL) can issue regulations exempting businesses with fewer than 50 employees. The sick leave mandate takes effect on April 2, 2020 and expires December 31, 2020.
- Family and medical leave – This normally would kick in after the ten-day emergency paid sick leave is utilized. The Act includes the Emergency Family and Medical Leave Expansion Act (EFMLEA), which requires employers with fewer than 500 employees to provide both paid and unpaid public health emergency leave to certain employees through December 31, 2020. The emergency leave generally is available when an employee who has been employed for at least 30 days is unable to work or telework due to a need for leave to care for a son or daughter under age 18 because a school or place of care has been closed, or a childcare provider is unavailable, due to an emergency with respect to COVID-19 that is declared by a federal, state, or local authority. The first 10 days of leave may be unpaid and then paid leave is required, calculated based on an amount not less than two-thirds of an employee’s regular rate of pay and the number of hours the employee would otherwise be normally scheduled to work, not to exceed $200 per day and $10,000 in the aggregate.
- Employer payroll tax credits – The Act provides for a payroll tax credit against Social Security tax liability equal to 100% of qualified sick leave wages paid, subject to some limits discussed below. These credits are also available to self-employed individuals.
The EPSLA credit for each employee is equal to the lesser of the amount of their leave pay or either (1) $511 per day while the employee is receiving paid sick leave to care for themselves, or (2) $200 if the sick leave is to care for a family member or child whose school is closed. The aggregate number of days available to an individual is limited to 10 for 2020.
The EMFLEA credit for each employee is the amount of their leave pay limited to $200 per day with a maximum of $10,000.
The above limits can be increased by qualified health plan expenses allocated to the employees. Qualified health plan expenses are amounts paid or incurred by the employer to provide and maintain a group health plan to the extent that such amounts are excluded from the gross income of employees.
Covered sick and family leave payments under the Act are exempt from Employer Social Security taxes. They are subject to Medicare taxes, but the employer tax credit is increased by the amount of employer Medicare tax paid.
The credits are refundable to the extent they exceed the employer’s payroll tax.
Employers don’t receive the credit if they’re also receiving the credit for paid family and medical leave in Code Sec. 45S which allows employers to claim a similar credit.
The Act provides similar credits for self-employed individuals which will be applied against federal income tax and is refundable if the allowable credits exceed the taxpayer’s income tax.
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Dave specializes in tax research, estates and trusts, complex partnerships, and corporate, not-for-profit, and private foundation tax compliance.