New Law Grants Paid Leave and Employer Credits for COVID-19 Absences
Update: The Department of Labor has created a webpage devoted to this new law. And the IRS has created a webpage for the credit. On March 31, IRS issued Notice 2020-22, offering penalty relief to employers who reduce employment tax deposits in anticipation of the credits for Qualified Leave Wages paid with respect to the period beginning April 1, 2020, and ending December 31, 2020.
On March 18, 2020, the President signed the Families First Coronavirus Response Act, H.R.6201, into law. The law, among other provisions, requires most private employers with fewer than 500 employees to provide emergency paid sick leave and emergency paid family and medical leave to their employees for coronavirus-related absences. It also creates a corresponding refundable paid sick leave credit and paid child care leave credit for these employers.
On March 20, 2020, the Treasury, IRS, and the Department of Labor, issued a joint announcement providing an overview of the provisions and explaining that formal guidance will be issued next week. The announcement states that impacted employers will be able to take immediate advantage of the paid leave credits by retaining and accessing funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers may seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.
Required Sick and Family Leave
The Act generally provides that for COVID-19-related absences, employers with fewer than 500 employees must provide employees with up to 80 hours of paid sick leave (for full-time employees) and expanded paid child care leave when their children's schools are closed or child care providers are unavailable.
The Emergency Paid Sick Leave Act portion of the Act requires private employers with fewer than 500 employees to provide paid sick leave where an employee is unable to work (or telework) because of one of the following circumstances:
- The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID–19.
- The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID–19.
- The employee is experiencing symptoms of COVID–19 and seeking a medical diagnosis.
- The employee is caring for an individual who is subject to an order as described in subparagraph (1) or has been advised as described in paragraph (2).
- The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID–19 precautions.
- The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.
Employers of an employee who is a health care provider or an emergency responder may elect to exclude such employee from the application of the sick leave provisions.
Full-time eligible employees are entitled to receive two weeks of paid sick leave, up to 80 hours, at 100 percent of their pay. Part-time employees are entitled to sick leave in an amount equal to the average number of hours they typically work in a two-week period. 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, required sick leave is capped at $511 per day and $5,110 in the aggregate. Sick pay for the other eligible reasons, such as caring for a sick child, is capped at $200 per day and $2,000 in the aggregate.
An employer may not require, as a condition of providing paid sick time, that the employee search for or find a replacement employee to cover the hours during which the employee is using paid sick time. The paid sick time must be available for immediate use by the employee, regardless of how long the employee has been employed by an employer. Employers cannot require employees to use other paid leave before taking advantage of the sick leave provided by the Act. Employers will be required to post notices and will be subject to Fair Labor Standards Act violations if they fail to comply with the law.
Expanded Family Leave
Under the Emergency Family and Medical Leave Expansion Act, employers with fewer than 500 employees must provide employees (who have been employed for at least 30 days) with up to 12 weeks of leave for COVID-19-related needs. This leave requirement applies to employees who are 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. The first 10 days of expanded family leave are unpaid, but the employee may receive sick pay during this time. After the first 10 days, an employee is eligible to receive paid leave, at 2/3 of the employee’s regular pay. This paid leave is capped at $200 per day or $10,000 in the aggregate.
Note: Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed, or child care is unavailable in cases where the viability of the business is threatened. A Department of Labor temporary rule issued April 1 provides guidane on this standard.
Employers subject to these laws are required to post notices. For employees working from home, this notice can be "posted" by emailing these notices to the employees.
Credits for Employers
To compensate employers subject to the new paid leave requirements, the law provides a corresponding refundable sick leave credit and paid child care leave credit for eligible employers. Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act. Eligible employers may claim these credits based on qualifying leave they provide to employees between the effective date (no later than 15 days after March 18) and December 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances.
The credits are refundable payroll tax credits, designed to immediately and fully reimburse employers, dollar-for-dollar, for the cost of providing the required leave to their employees. Employers will receive 100% reimbursement for paid leave provided under the Act.
The March 20 Announcement states that:
- Health insurance costs are included in the credit.
- Employers face no payroll tax liability.
- Self-employed individuals receive an equivalent credit.
- Reimbursement will be quick and easy to obtain.
- An immediate dollar-for-dollar tax offset against payroll taxes will be provided.
- Where a refund is owed, the IRS will send the refund as quickly as possible.
- Requirements subject to 30-day non-enforcement period for good faith compliance efforts.
Paid Sick Leave Credit
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 refundable sick leave credit for sick leave 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.
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 credit for 2/3 of the employee's regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
Child Care Leave Credit
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 2/3 of the employee's regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave counts towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
Credit Against Payroll Taxes
The March 20 announcement states that, under guidance that will be released next week, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit those taxes with the IRS.
The payroll taxes 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 sufficient payroll taxes to cover the cost of leave paid, employers may file a request for an accelerated payment from the IRS. The IRS states that it expects to process these requests in two weeks or less. The details of the procedure will be announced next week.
Example in the Announcement
The Announcement includes the following example:
If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could 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 under the law to deposit the remaining $3,000 on its next regular deposit date.
If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.
Equivalent leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.
This is a law with significant immediate impact. We will be watching for formal guidance next week.
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