IRS Issues Guidance on Tax Credits for Coronavirus Paid Leave

Small and midsize employers may begin using two new refundable payroll tax credits to obtain reimbursement for the costs of providing coronavirus-related leave to their employees, the U.S. Department of Labor (DOL) and Internal Revenue Service (IRS) announced on March 20, 2020.

This relief is provided under the Families First Coronavirus Response Act (the Act), which was enacted on March 18, 2020. The Act provides funds for employers ( businesses and tax-exempt organizations) with fewer than 500 employees to provide paid leave, either for their employees’ own health needs or to care for their family members. The Act aims to help employers keep workers on their payrolls while ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the coronavirus (COVID-19).

The Act provides paid sick leave and expanded family and medical leave for COVID-19 related reasons and creates the refundable paid sick leave credit and the paid childcare leave credit for eligible employers.  Eligible employers will be able to claim these credits based on qualifying leave they provide between the effective date and Dec. 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances.  

Highlights

Paid Leave Requirements

The federal coronavirus relief law requires employers to provide paid sick and family leave for COVID-19-related reasons, including lack of childcare.

Employer Tax Credits

Eligible employers may claim two tax credits based on the COVID-19-related paid leave that they provide between April 2 and Dec. 31, 2020.

Small Business Exemption

Employers with fewer than 50 employees may qualify for an exemption from paid childcare leave requirements.

Paid Leave

The Act provides that employees of eligible employers can receive two weeks (up to 80 hours) of paid sick leave at 100% of the employee’s pay where the employee is unable to work because the employee is quarantined or experiencing COVID-19 symptoms and seeking a medical diagnosis.

An employee who is 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, or if the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services can receive two weeks (up to 80 hours) of paid sick leave at two-thirds the employee’s pay.

An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional 10 weeks of expanded paid family and medical leave at two-thirds of the employee’s pay.

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 for whom the child care provider is unavailable due to the coronavirus, eligible employers may claim a credit for two-thirds 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 based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Download the full advisor to learn more about:

• Child Care Leave Credit
• Prompt Payment for the Cost of Providing Leave
• Small Business Exemption
• Non-Enforcement Period