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The Department of Treasury, the Department of Labor, and the IRS announced impending regulations that will help covered businesses navigate the paid family and sick leave provisions of the Families First Coronavirus Response Act, including available tax credits, the small employer exemption, and a 30-day non-enforcement grace period.
Refresher: What Leave Does the Act Provide?
The Act provides that eligible employees of covered employees can receive:
1. Up to 80 hours of paid sick leave at 100 percent of the employee’s regular rate pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis, capped per employee at $511 per day and $5,110 in total;
2. Up to 80 hours of paid sick leave at two-thirds of the employee’s regular rate of pay where the employee 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 child care 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, capped per employee at $200 per day and $2,000 in total; and
3. Up to an additional ten weeks of expanded paid family and medical leave at two-thirds of the employee’s regular rate of pay when the employee is unable to work because of a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, capped per employee at $200 per day and $2,000 in total.
Paid Leave Tax Credits
The Act makes available the following tax credits to help employers pay for this paid sick and family leave:
1. For an employee who is unable to work because of Coronavirus quarantine or self-quarantine, or has Coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a tax credit up to $511 per day and $5,110 in the aggregate, for a total of 10 days.
2. For an employee who is caring for someone with Coronavirus, or is caring for a child because the child’s school or child care facility is closed, or the child care provider is unavailable due to the Coronavirus, eligible employers may claim a tax credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days.
3. In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus, eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee’s regular rate of pay, capped at $200 per day or $10,000 in the aggregate, for up to 10 weeks.
4. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for eligible employees during the leave period.
Eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes equal to the amount of qualifying sick and child care leave that they paid, instead of depositing them with the IRS.
If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request with the IRS for an accelerated payment. The IRS expects to process these requests in two weeks or less, with further guidance on this issue coming in the next two weeks.
Examples
1. An eligible employer pays $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including employee withholdings. The employer is entitled to use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required to deposit the remaining $3,000 with the IRS on its next regular deposit date.
2. An eligible employer pays $10,000 in sick leave and is required to deposit $8,000 in payroll 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.
Small Business Exemption
Businesses with less than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or child care unavailability, provided that the employer can show that compliance would jeopardize the ability of the business to continue. The DOL will be providing emergency guidance establishing simple and clear criteria defining the circumstances that will meet the criteria of jeopardy to the viability of an employer’s business as a going concern.
Non-Enforcement Period
The DOL will be issuing a temporary non-enforcement policy. Under the policy, the DOL will not enforce the Act until May 2, 2020 (30 days after its effective date), against employers that have acted reasonably and in good faith to comply.
I continue to monitor these issues in real-time and will be posting updates here as warranted. If you have any questions, feel free to contact me directly.
Robyn Smith worked as a community manager for apartment complexes. As part of her compensation, she lived rent-free on site.
