New credits fund employers for Coronavirus-related paid leave

The Families First Coronavirus Response Act provides tax credits to reimburse employers for the costs of providing paid sick leave and paid family and medical leave to employees unable to work because of the coronavirus (COVID-19). These credits are refundable. That means if the amount of the credit exceeds the amount of tax owed, the remainder is refunded to the business or organization.

The law is intended to allow employers to keep employees on their payrolls, while at the same time making sure employees aren’t forced to choose between their paychecks and public health measures needed to combat COVID-19. 

These credits are available to eligible employers beginning April 1, 2020, for qualifying leave they provide between April 1, 2020, and Dec. 31, 2020.

Covered employers

Eligible employers are businesses and tax-exempt organizations with fewer than 500 full-time and part-time employees within the United States or any U.S. territory or possession and that have to meet employer paid leave requirements. The Questions and Answers and regulations issued by the U.S. Department of Labor have more information about the 500-employee threshold and the paid leave requirements.

The law allows equivalent credits for self-employed individuals in similar circumstances. For details, see specific provisions related to self-employed individuals in the COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs

Paid sick leave requirement and credit

Employees of eligible employers who are unable to work or telework because they’re quarantined or experiencing COVID-19 symptoms and seeking a medical diagnosis can receive up to 80 hours of paid sick leave. This pay is at their regular rate of pay or, if higher, the applicable minimum wage, up to $511 per day and $5,110 in total. 

Employees can receive up to 80 hours of paid sick leave at 2/3 of their regular pay or, if higher, the applicable minimum wage, up to $200 per day and $2,000 in total. Employees can receive this benefit if they need to care for:

  • An individual subject to quarantine

  • A child whose school or place of care is closed

  • A child whose child-care provider is unavailable, due to COVID-19 or because they’re experiencing similar conditions as specified by the U.S. Department of Health and Human Services. An employee is eligible for paid sick leave, regardless of length of employment. The eligible employer is entitled to a fully refundable tax credit equal to the required paid sick leave wages. Eligible employers can also get an additional credit for the employer’s share of Medicare tax imposed on the qualified sick leave wages and the cost of maintaining health insurance coverage for the employee during the sick leave period. The employer is not subject to the employer portion of Social Security tax on those wages. 

Paid family and medical leave requirement and credit: How to claim the credits

Eligible employers claiming the credits must keep records and documentation supporting each employee’s leave. The COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs has more information about the documents needed to support the employee’s leave and the employer’s credit. An employer should keep all employment tax records for at least four years. The Questions and Answers issued by the U.S. Department of Labor have more information about the leave requirements.

More information: Coronavirus Tax Relief 

Keep records to substantiate claims

An eligible employer is entitled to a credit of $10,000 for paying qualified leave wages (and allocable qualified health plan expenses) and is otherwise required to deposit $8,000 in federal employment taxes withheld from all of its employees on wage payments made during the same quarter. The employer can keep the entire $8,000 of taxes that it was otherwise required to deposit without penalties as a portion of the credits it is otherwise entitled to claim on Form 941. The employer may file a request for an advance credit for the remaining $2,000 by completing Form 7200.

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