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Paid Leave and Tax Credits for Businesses

The Families First Coronavirus Response Act was signed into law by President Trump on March 18, 2020.

The Act provides relief to employees, as well as small and midsize businesses, that have been affected by the Coronavirus. Employers can take advantage of two refundable payroll tax credits to reimburse them, dollar for dollar, the cost of providing Coronavirus-related leave to their employees. [1]

Paid Family Leave

The Act expands FMLA paid family leave to include leave related to the coronavirus.  In particular, the Act allows employees caring for a son or daughter a maximum of 12 weeks of paid leave. The first two weeks is unpaid unless the employee substitutes available PTO.  The next 10 week’s pay is at capped at two-thirds of regular pay, up to $200 per day, with a maximum benefit amount of $10k.

Government employees and employees of employers with 50 or more employees who have been on the job for at least 30 days have the right to take job-protected leave. There is a small business exemption election for businesses with less than 50 employees that the Act would create a financial hardship for. The DOL is expected to provide further guidance on this exemption. [2]

Eligible Employers may receive a payroll credit of up to $200 per day, capped at $10k.

Paid Sick Leave

Paid Sick Leave is available to employers with less than 500 employees. Employees that are subject to quarantine or isolation due to the Coronavirus may take 80 hours of paid sick leave at 100% of pay.  If the employee is caring for someone that is subject to quarantine or isolation, they may take sick leave at two-thirds of their pay.

Tax Credits are available to the employer. The credit is capped at $511 per day if the employee is sick, and $200 per day if they are caring for someone else. These tax credits will be applied against FICA taxes.

The effective date is April 1, 2020, and paid leave is not applied to leave taken before that date. [3] 

Employers should keep in mind that isolation and quarantine are different from Shelter in Place.  Shelter in Place is not covered under this Act but rather under the Cares Act (see below).The tax credits only apply to the employers that are required to provide the expanded FMLA and required emergency paid sick leave. Employers that voluntarily provide this type of benefit will not be eligible for the tax credit.

Tax Credits under the CARES Act

Employers that have had to suspend operations due to the Coronavirus shutdown are eligible for a 50% refundable payroll tax credit on wages paid up to $10,000. In addition to suspending operations, employers must also have a decrease in gross receipts of 50% or more when compared to the same quarter last year.

The business cannot be a government employer or a small employer that takes advantage of a small business loan under the CARES Act. 

The credit can be claimed by businesses with 100 or fewer full-time employees or by businesses with 100 or more full-time employees that have furloughed employees.  Businesses claiming a tax credit on wages under the Families First Coronavirus Act cannot also claim this tax credit. There is no double dipping on wages. Plan Sponsors that have questions regarding the loan provisions should also reach out to us.


Sources:
[1] “Treasury, IRS and Labor announce plan to implement Coronavirus-related paid leave for workers and tax credits for small and midsize businesses to swiftly recover the cost of providing Coronavirus-related leave,” IRS.gov, March 20, 2020, (Source)
[2] Shuey, Dan, et al. “Vorys On Call: Coronavirus” Webinar, Vorys, Columbus, March 26, 2020
[3] Additional: U.S. Congress, House, Families First Coronavirus Response Act, H.R.6201, 116th Cong., introduced March 11, 2020, (Source)

Posted in: Business Owners, Tax

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