Families First Coronavirus Response Act
On Wednesday March 18, President Trump signed into law the Families First Coronavirus Response Act.
This new law requires paid leave for small-business employees affected by COVID-19. It also grants two new refundable payroll tax credits for small and midsize employers. These credits are designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees.
The Act gives American businesses with fewer than 500 employees funds to provide employees with paid leave. The goal is to encourage sick workers to stay home while keeping them on payroll.
Paid Sick Leave for Workers
Employees can receive up to 80 hours of paid sick leave at 100% of the employee’s pay if the employee is unable to work because they are experiencing COVID-19 symptoms and must be quarantined.
If the employee is not able to work because they need to take care of someone who is quarantined or care for a child because their school is closed, they can receive 80 hours of paid sick leave at 67% their employee pay.
Paid Sick Leave Credit
To pay for all this, the employers will receive a refundable sick leave credit at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days. This is for employees who are directly experiencing COVID-19 symptoms and are not able to work.
For employees who need to stay home to take care of someone, employers may claim a credit of up to two-thirds (67%) the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days.
Employers may receive an additional tax credit to cover the costs of maintaining health insurance coverage for employees during the leave period.
Childcare Leave Credit
In addition to the paid sick leave credit, employers may receive a credit to pay employees who are not able to work because they must stay home to care for a child whose school or childcare facility is closed.
This credit is equal to two-thirds of the employee's regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the childcare leave credit.
Employers may receive an additional tax credit to cover the costs of maintaining health insurance coverage for employees during the leave period.
Payment for Cost of Providing Leave
When employers pay their employees, they are required to withhold from their employees' paychecks federal income taxes and the employees' share of Social Security and Medicare taxes. The 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) with the IRS.
Employers who are paying 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 that are 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 enough 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 within two weeks.
Examples
If an eligible employer paid $2,000 in sick leave and is otherwise required to deposit $6,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $2,000 of the $6,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $4,000 on its next regular deposit date.
If an eligible employer paid $9,000 in sick leave and was required to deposit $6,000 in taxes, the employer could use the entire $6,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $3,000.
Self-Employed Individuals
If you are a self-employed individual who is affected by COVID-19, the ACT allows you to claim a refundable tax credit on your 2020 tax return. This credit will reduce federal income tax and self-employment tax. If the credit exceeds your tax, you will receive a payment for the excess.
The credit is 100% for sick leave affecting the self-employed individual and 67% for taking care of a sick family member or a child who is not able to go to school.
You must calculate your average daily self-employment income and compare it to the $511 maximum per day. You can take the lesser amount as the credit. It is important to maintain proper documentation of how you were affected by COVID-19 and why you were not able to continue your normal business operations.
Small Business Exemption
Small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or childcare unavailability. The exemption applies where the requirements would jeopardize the ability of the business to continue.
For example, if you have a small accounting business with five employees and you need everyone to work because your clients need help applying for SBA loans, you are not required to provide paid leave for the employees to stay home and take care of their children. However, you are required to provide paid leave if the employee is exhibiting symptoms of COVID-19 and must stay home.
Non-Enforcement Period
Labor will be issuing a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the Act. Under this policy, Labor will not bring an enforcement action against any employer for violations of the Act so long as the employer has acted reasonably and in good faith to comply with the Act. Labor will instead focus on compliance assistance during the next 30 days.
