On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (the “Act”), which is one of many pieces of legislation that will address the various impacts of the COVID-19 pandemic. The Act includes provisions that:

  • Expand food security initiatives.Family
  • Establish a federal emergency paid leave benefits program to provide payments to employees taking unpaid leave due to the coronavirus outbreak.
  • Expand unemployment benefits and provide grants to states for processing and paying claims.
  • Require employers to provide paid sick leave to employees.
  • Establish requirements for providing coronavirus diagnostic testing at no cost to consumers.
  • Treat personal respiratory protective devices as covered countermeasures that are eligible for certain liability protections.
  • Temporarily increase federal Medicaid funding.
  • Provide new tax credits to offset new costs associated with paid emergency leave and sick leave benefits implemented under the Act, as well as provide credit for health plan expenses associated with emergency and sick leave wages.

This article focuses on paid sick leave, family paid leave, and related tax credit provisions of the Act.

Paid Sick Leave

The Emergency Paid Sick Leave Act (EPSLA) division of the Act generally requires private employers with fewer than 500 employees to provide 80 hours of paid sick time to employees who are unable to work for virus-related reasons (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The pay is up to $511 per day with a $5,110 overall limit for an employee directly affected by the virus and up to $200 per day with a $2,000 overall limit for an employee that is a caregiver. Employers who are health care providers or emergency responders may elect to exclude employees from the emergency paid sick leave
provisions of the Act.

The Payroll Sick Leave Credit

The tax credit corresponding with the EPSLA mandate is a credit against the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax). The credit amount generally tracks the $511/$5,110 and $200/$2,000 per-employee limits described above. The credit can be increased by (1) the amount of certain expenses in connection with a qualified health plan if the expenses are excludible f rom employee income and (2) the employer’s share of the payroll Medicare hospital tax imposed on any payments required under the EPSLA. Credit amounts earned in excess of the employer’s 6.2% Social Security (OASDI) tax (or in excess of the Railroad Retirement tax) are refundable. The credit is electable and includes provisions that prevent double tax benefits (for example, using the same wages to get the benefit of the credit and of the current law employer credit for paid family and medical leave). Employers must post a notice advising employees of their rights under the new act. This notice will be available from the Secretary of Labor by March 25. Employers must include the amount of the credit in their gross income. The credit applies to the period beginning April 1, 2020 and ending on December 31, 2020.

The Self-Employed Sick Leave Credit

The Act provides a refundable income tax credit (including against the taxes on self-employment income and net investment income) for sick leave to a self-employed person by treating the self-employed person both as an employer and an employee for credit purposes. Thus, with some limits, the self-employed person is eligible for a sick leave credit to the extent that an employer would earn the payroll sick leave credit if the self-employed person were an employee. Accordingly, the self-employed person can receive an income tax credit with a maximum value of $5,110 or $2,000 as per the payroll sick leave credit. However, those amounts are decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid sick leave from an employer under the Act. Self-employed persons must include the amount of the credit in their gross income. The credit applies to the period beginning April 1, 2020 and ending on December 31, 2020.

Paid Family Leave

The Emergency Family and Medical Leave Expansion Act (EFMLEA) division of the Act requires employers with fewer than 500 employees to provide both paid and unpaid leave (with an administrative exemption for lessthan-50-employee businesses that the leave mandate puts in jeopardy). The leave generally is available when an employee must take off to care for the employee’s child under age 18 because of a COVID-19 emergency declared by a federal, state, or local authority that either (1) closes a school or child care place or (2) makes a childcare provider unavailable. Generally, the first 10 days of leave can be unpaid and then paid leave is required, pegged to the employee’s pay rate and pay hours. However, the paid leave can’t exceed $200 per day and $10,000 in the aggregate per employee. Employers who are health care providers or emergency responders may elect to exclude employees from the emergency paid sick leave provisions of the Act.

The Payroll Family Leave Credit

The tax credit corresponding with the EFMLEA mandate is a credit against the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax). The credit generally tracks the $200/$10,000 per employee limits described above. The other important rules for the credit, including its effective period, are the same as those described above for the payroll sick leave credit.

The Self-Employed Family Leave Credit

The Act provides to the self-employed a refundable income tax credit (including against the taxes on self-employment income and net investment income) for family leave similar to the self-employed sick leave credit discussed above. Thus, a self-employed person is treated as both an employer and an employee for purposes of the credit and is eligible for the credit to the extent that an employer would earn the payroll family leave credit if the self-employed person were an employee. Accordingly, the self-employed person can receive an income tax credit with a maximum value of $10,000 as per the payroll family leave credit. However, under rules similar to those for the self-employed sick leave credit, that amount is decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid family leave from an employer under the Act. The credit applies to the period beginning April 1, 2020 and ending on December 31, 2020.

Exemption for employer’s portion of any Social Security (OASDI) payroll tax or railroad retirement tax arising from required payments

Wages paid as required sick leave payments because of EPSLA or as required family leave payments under EFMLEA aren’t considered wages for purposes of the employer’s 6.2% portion of the Social Security (OASDI) payroll tax or for purposes of the Railroad Retirement tax.

As governmental response to the COVID-19 pandemic evolves quickly, we will keep you informed of new tax developments as they arise. Please contact the professionals at Gilliam Bell Moser if you have any questions related to the Families First Coronavirus Response Act.

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Brett Davidson CPA - Greensboro CPA

Brett Davidson, CPA/PFS
Manager
336.417.5515
Email Brett