Updating the legal information we have been providing on the two “sick pay” laws passed by Congress and the Senate a week ago, we wanted to update businesses who continue to employ their employees on April 1, 2020 (the effective date of the Families First Coronavirus Response Act (“FFCRA”) and the Emergency Paid Sick Leave Act (“EPSLA”) ) of the “refundable” payroll tax credits for employers in order to assist with the cost of providing Coronavirus-related leave to their employees. These refundable payroll tax credits are designed to reimburse businesses with under 500 employees for cost of providing COVID-19-related leave to their employees. The tax credit goes into effect on April 1, 2020 and will remain in effect until December 31, 2020 unless extended or modified.
Eligible Employer for the tax credit?
An eligible employer is a business or tax-exempt organization with fewer than 500 employees who is required to provide emergency paid leave under the Emergency Family and Medical Leave Expansion Act (“EFMLEA”) or the Emergency Paid Sick Leave Act (“EPSLA”). Self-employed individuals also receive an equivalent credit.
The tax credit?
The FFCRA provides “refundable” tax credits against the employer’s payroll tax deposit. The tax credits are equal to 100% of the amount an employer pays and employee under the EFMLEA and the EPSLA up to a per employee cap.
Employers “refundable” credit for wages paid pursuant to sick leave at two separate pay rates are limited in two ways.
If the employee is unable to work because the employee has Coronavirus symptoms or is in a Coronavirus quarantine, including a self-quarantine, the employer’s tax credit is capped at the employee’s regular pay rate, up to $511 per day, for up to 10 days, or $5,110 total aggregate per employee.
If an employee is unable to work because the employee is caring for a family member with Coronavirus or caring for a child because of school or childcare facilities closing and the closing is related to COVID-19, the employer’s tax credit is capped at the employee’s regular pay rate, up to $200 per day, for up to 10 days, or $2,000 total aggregate per employee.
In addition to the “refundable” credits outlined above, the FFCRA provides a refundable tax credit for payments the employer makes to an employee who is unable to work because the employee must care for a child whose school or childcare facility is closed.
Under the FFCRA scenario, an employer may receive a refundable child care leave credit for up to 10 weeks of the employee’s qualifying leave. The refundable credit for child care leave is capped at the employee’s regular pay rate, or $200 per day, or $10,000 total aggregate per employee. Employers are also entitled to an additional credit based on the costs to maintain health insurance during the child care leave period.
How are the tax credits refundable?
All tax credits under FFCRA are “refundable”. If an employer’s payroll tax deposit is less than the total FFCRA tax credits, the employer is eligible to file a request for an accelerated credit for the amount above the employer’s payroll tax deposit. The credit can be used to offset all federal income tax withholding from all employees (including those still working) and both the employer and employee portions of Social Security and Medicare taxes for all employees