Families First Coronavirus Response Act Is Signed Into Law
Update: This article has been updated with the latest guidance as of April 6. The IRS has provided additional guidance here.
President Trump signed the Families First Coronavirus Response Act into law March 18, providing additional economic relief to those affected by the COVID-19 pandemic. The Act contains provisions for paid leave for employees, tax credits for business owners, COVID-19 testing, unemployment insurance, and additional funding for government programs. The new law is effective as of April 1.
Originally introduced by the House of Representatives, the Act underwent a number of changes before being signed into law, including scaled back requirements for providing paid sick leave and paid emergency family and medical leave.
The Act requires certain employers to provide 80 hours of paid sick leave at full wages, or two-thirds of normal wages in certain instances, (pro-rated for part-time employees) and up to ten weeks of paid emergency family and medical leave at two-thirds of normal wages. However, the Act’s final provisions depart from the proposed original language and instead cap the amount of wages required to be paid per employee:
- Sick leave attributable to an employee caring for themselves is paid at their full wage up to a maximum of $511 per day and $5,110 in aggregate.
- Sick leave attributable to an employee caring for another individual is paid at two-thirds of their normal wage up to a maximum of $200 per day and $2,000 in aggregate.
- Emergency family and medical leave is paid at two-thirds of their normal wage up to a maximum of $200 per day and $10,000 in aggregate.
The Act’s mandatory paid leave benefits are generally imposed on employers with fewer than 500 employees. However, the Act allows the Department of Labor to issue rules exempting certain small businesses with fewer than 50 employees. The Labor Department makes this exemption available in circumstances where the small business’s viability as a going concern is in jeopardy.
The Act’s required paid sick leave benefits relate to employees that are unable to work or telework for the following reasons:
- The employee is subject to a government quarantine or isolation order related to COVID-19.
- The employee has been advised by a healthcare 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 quarantine or isolation related to COVID-19.
- The employee is caring for their children because their school, place of care, or childcare provider is closed or otherwise unavailable due to COVID-19 precautions.
- The employee is experiencing any other substantially similar condition as specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.
The Act’s required emergency family and medical leave only applies to employees that must miss work to care for children under age 18 because their school, place of care, or childcare provider is closed or otherwise unavailable.
If you are potentially impacted by these new paid sick and family leave benefits, we encourage you to seek proper legal counsel in determining how to apply these labor and employment laws to your specific situation. The Labor Department has provided additional details regarding the legal aspects of the Act’s paid leave requirements on their website.
Payroll Tax Credits
The payroll tax credits provided by the Act were largely unchanged from the original legislation. The Act provides employers with payroll tax credits designed to offset the cost of providing additional paid leave. The tax credit amounts will generally equal the amount of wages employers pay in accordance with the Act’s mandatory paid leave benefits, subject to certain maximum credit amounts (i.e., up to $511 per day or $200 per day, as applicable). The Act also includes further details about the credits:
- The credit for paid sick leave is limited to 10 days of paid wages per employee, or $5,100 or $2,000 in aggregate, as applicable.
- The credit for paid family and medical leave is limited to $10,000 per employee.
- Wages paid in accordance with the Act’s mandatory paid leave benefits are not subject to the employer portion of Social Security taxes (i.e., 6.2%), but they are subject to the employer portion of Medicare taxes (i.e., 1.45%).
- The allowable credit amount is increased by the employer’s qualified health plan expenses1 allocable to wages paid in accordance with the Act and the employer’s share of Medicare taxes on such wages.
- The credits are refundable credits against the Social Security tax imposed on the employer related to the wages paid with respect to all the employer’s employees (i.e., the 6.2% employer portion of the payroll taxes).
- The credits do not impact the employee portion of Social Security or Medicare taxes. Thus, employers must continue to withhold all employee payroll taxes from all wages paid.
- The amount of credit received by an employer is included in the employer’s gross income.
- Any wages considered in determining the credits provided by the Act are not considered in determining the Family and Medical Leave Act (FMLA) credit under Section 45S.
The IRS has released additional guidance for claiming these new payroll tax credits. We encourage all businesses impacted by these provisions to contact their payroll tax provider to ensure procedures are in place to properly claim these credits.
Income Tax Credits for Eligible Self-Employed Individuals
The Act provides an income tax credit to eligible self-employed individuals for qualified sick leave and qualified family and medical leave. This credit is designed to provide self-employed individuals with the same paid leave benefits available to employed individuals as outlined in the Act. This credit will be claimed on the eligible self-employed individual’s 2020 income tax return.
The Secretary of the Treasury will continue providing additional guidance and regulations needed to fully implement the payroll tax credits and income tax credits. We will continue providing updates as more information becomes available.
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