By Demetrius Robinson & Rob Gilmore

coronavirus tax creditLast week, President Trump signed the Families First Coronavirus Response Act, marking the second major piece of legislation passed by Congress in response to the COVID-19 coronavirus outbreak. While there are several key provisions in the law, including unemployment insurance grants to states, a major piece of the legislation is the requirement that certain employers provide paid sick leave to their employees. In addition, the legislation introduced a new payroll tax credit for employers who provide paid sick and family leave to their employees.

Under the Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act (Divisions C & E of the bill), certain employers are now required to provide paid sick leave to employees who may be unable to work (or telework) as a result of:

  • Quarantine or isolation directed by a federal, state or local order,
  • Quarantine on the advice of a medical professional,
  • Self-quarantine after experiencing symptoms of COVID-19 and awaiting formal medical diagnosis,
  • Caring for an individual who is quarantined at the request of a medical professional or due to a federal, state or local order,
  • Caring for a child, who is unable to attend school or childcare center due to precautionary measures related to COVID-19, or
  • Experiencing substantially similar conditions specified by the Secretary of Health and Human Services.

The Emergency Paid Sick Leave Act requires the specified employer to provide up to 80 hours of paid sick leave, through December 31, 2020, for employees who are unable to work.

Payroll Tax Credit for Required Paid Sick Leave

The Emergency Paid Sick Leave Act provides an employer a refundable payroll tax credit equal to 100% of qualified sick leave wages paid to an employee who is unable to work or telework. The payroll tax credit will apply against Social Security (Sec. 3111(a)) or Tier 1 Railroad Retirement Act (Sec. 3221(a)) taxes. The tax credit is available for:

  • Up to $511 per day ($5,110 in the aggregate) in wages for each employee quarantined or isolated at the direction of a federal, state or local order, medical professional, or self-quarantined after experiencing symptoms of COVID-19 (pending formal medical diagnosis), or
  • Up to $200 per day ($2,000 in the aggregate) in wages for employees caring for someone quarantined or a child unable to attend school or childcare center due to COVID-19 precautions, for each day that an employee receives in qualified sick leave pay.

The payroll tax credit is only available for up to 10 days per quarter, per employee. In addition, the tax credit is increased by the amount of Medicare taxes (Sec. 3111(b)) imposed on the paid qualified sick leave wages. Furthermore, the payroll tax credit can be increased by certain qualified health plan expenses that are allocable to the qualified sick leave wages for which the credit is allowed. Wages paid under the Emergency Paid Sick Leave Act are not considered wages for purposes of Sec. 3111(a) or the Sec. 3221(a).

In order to reduce the double benefit associated with the payroll tax credit, an employer’s gross income will be increased by the amount of the credit. Furthermore, an employer credit will be reduced by a credit received under the Family and Medical Leave tax credit under Sec. 45S (implemented under the Tax Cuts & Jobs Act).

The credit is only effective for qualified sick leave wages starting on a date to be designated by the Treasury Secretary, which will be not later than April 2, 2020.

Payroll Tax Credit for Required Paid Family Leave

The Emergency Family and Medical Leave Expansion Act provides an employer a refundable payroll tax credit equal to 100% of qualified family leave wages paid to an employee who is unable to work (or telework) as a result of caring for an individual who is quarantined at the request of a medical professional or due to a federal, state or local order, or caring for a child who is unable to attend school or childcare center due to precautionary measures related to COVID-19. The payroll tax credit will apply against Social Security (Sec. 3111(a)) or Tier 1 Railroad Retirement Act (Sec. 3221(a)) taxes. The tax credit is available for up to $200 per day for each day that an employee receives qualified family leave pay, maximum of $10,000 in wages per employee.

Furthermore, the tax credit is increased by the amount of Medicare taxes (Sec. 3111(b)) imposed on qualified sick leave wages. The payroll tax credit can also be increased by certain qualified health plan expenses that are allocable to the qualified sick leave wages for which the credit is allowed.

In order to reduce the double benefit associated with the payroll tax credit, an employer’s gross income will be increased by the amount of the credit. Furthermore, an employer credit will be reduced by a credit received under the Family and Medical Leave tax credit under Sec. 45S (implemented under the Tax Cuts & Jobs Act). Wages paid under the Emergency Family and Medical Leave Expansion Act are not considered wages for purposes of the Sec. 3111(a) or Sec. 3221(a).

The credit is only effective for qualified family leave wages starting on a date to be designated by the Treasury Secretary (which will be not later than 15 days after enactment).

Self-Employed Individuals

Self-employed individuals are also eligible for a refundable tax credit against income. An eligible self-employed individual means an individual who regularly carries on a trade or business and would be entitled to paid leave under this Act if they were an employee of an employer.

Self-employed individuals are entitled to the lesser of $200 ($511 if quarantined or isolated at the direction of a federal, state or local order, medical professional, or self-quarantined after experiencing symptoms of COVID-19 (pending formal medical diagnosis)) or 67% (100% if quarantined or isolated at the direction of a federal, state or local order, medical professional, or self-quarantined after experiencing symptoms of COVID-19 (pending formal medical diagnosis)) of the average daily income of the self-employed individual.

If you have questions or would like to discuss further, please reach out to Tax Services Partner Demetrius Robinson at djr@kjk.com or 614.427.5749 or Labor & Employment Chair Rob Gilmore at rsg@kjk.com or 216.736.7240.