Families First Coronavirus Response Act
On Wednesday, March 18, 2020 President Trump signed the “Families First Coronavirus Response Act” into law. There are several different components to the new law all aimed at mitigating the unprecedented, continuously evolving, impacts of COVID-19 that we are facing in our communities and in our country. We are aware that this new law will likely have significant impacts on our clients, their businesses and their families. With that in mind, the following is an overview of the various provisions of the new law. Please note, there are still many unanswered questions as to how the complexities and mechanics of these new laws will be implemented. We will be continually monitoring additional guidance as it is released and provide updated information as it becomes available. In the meantime, please feel to reach out to your BRC tax advisor with any tax-related questions you may have.
Emergency Family and Medical Leave Expansion Act
- New FMLA requirements that are applicable to most employers with fewer than 500 employees.
- Employers must provide paid leave under FMLA to eligible employees after the first 10 days an employee is out on leave. Employees may use other accrued leave during the first 10-day period.
- Eligible employees are those that have been employed for a period of at least 30 days (versus 12 months under existing FMLA laws).
- To qualify for this benefit, the employee must be unable to work due to a lack of childcare (i.e., school closure, daycare closure, etc.)
- The paid leave amount is calculated based on an amount not less than two-thirds (2/3rd) of an employee’s regular rate of pay (factoring in the number of hours the employee would otherwise normally be scheduled to work). There are provisions in the legislation related to how to calculate this amount for employees whose hours vary week to week.
- The maximum required to be paid to an employee is $200/day up to an aggregate of $10,000.
- Employers with fewer than 25 employees have altered rules related to the requirements for providing employees with a restored position upon their return to work.
Emergency Paid Sick Leave Act
- There are new paid sick leave requirements applicable to most private employers with fewer than 500 employees.
- An employer shall provide to each employee paid sick time under any of the following circumstances:
- The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19,
- The employee has been advised by a health care 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 an order as described in subparagraph (i) or has been advised as described in paragraph (ii),
- The employee is caring for their child if the school or place of care of the child has been closed, or
- The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.
- Employers are required to give employees paid sick time as follows: (a) full time employees, 80 hours; (b) part time employees, a number of hours equal to the number of hours that such employee works, on average, over a 2-week period.
- Wages for leave under (1), (2) and (3) above must not be less than the employees regular rate of pay (or minimum wage, if greater). However, the maximum amount required to be paid to an employee on leave for one of these reasons is $511/day up to a total of $5,110 per employee.
- Wages for leave under (4), (5) and (6) above must not be less than two-thirds (2/3rd) of the employee’s regular rate of pay (or minimum wage, if greater). However, the maximum amount required to be paid to an employee on leave for one of these reasons is $200/day up to a total of $2,000 per employee.
- This sick time does not carry over from 1 year to the next.
All of the following apply to both the “Emergency Family and Medical Leave Expansion Act” and the “Emergency Paid Sick Leave Act”:
- There is language in the law that gives the Secretary of Labor authority to issue regulations that can exempt small businesses with fewer than 50 employees from the requirements of these sections “when the imposition of such requirements would jeopardize the viability of the business as a going concern.”
- Employers may elect to exclude employees who are health care providers and/or emergency responders from these new requirements.
- Employers are eligible for a payroll tax credit equal to the wages paid under these provisions of the law (discussed in more detail below).
- Wages paid under these new acts are not considered wages/compensation for employment tax purposes.
- The IRS and DOL have issued guidance stating that the effective date for these requirements is April 1, 2020.
- The requirements of these acts will expire on December 31, 2020.
Payroll Tax Credits for Required Paid Sick Leave and Required Paid Family Leave
- Employers will be allowed as a credit against their payroll tax deposit an amount equal to 100% of the qualified sick leave wages and/or qualified family leave wages paid by such employer (limited to the maximum amounts required to be paid to employees – see summary above for limitations).
- The credit amount may be increased by the amount the employer pays or incurs to provide and maintain a group health plan on behalf of the employee during their leave.
- If the credit exceeds the amount of payroll taxes owed, the excess will be refundable.
- The amount of the credit must be included in gross income of the employer and no credit is allowed with respect to wages for which a credit is allowed under section 45S of the Code (Family and Medical Leave Credit).
- There are also provisions within the law that allow self-employed individuals to claim a credit.
- The credit does not apply to certain federal, state or local governments.
On March 20th, the IRS released the following guidance as it relates to the mechanics of the payroll tax credits:
- It states that employers, who are required to pay qualified family or qualified sick leave to their employees, can immediately retain an amount equal to the leave pay provided from their otherwise required payroll tax deposits with the IRS (including amounts withheld from employees for federal income taxes, employees and employers share of Social Security and Medicare taxes). The idea is for employers to not be out of pocket for payments being made to employees under these new provisions.
- In situations where the amounts an employer would otherwise be required to deposit with the IRS for payroll taxes are not sufficient to cover the amounts paid to employees for qualifying family and qualifying sick leave, the IRS has stated they will be releasing a process/form in the next week to allow for employers to request a refund of the remaining balance they are owed (said to be paid within 2 weeks of a request being made).
- The guidance on the website provides the following examples:
If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.
If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.
Equivalent child care leave and sick leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law. The CARES Act provides some clarification on some of the Families First Coronavirus Response Act (FFCRA) provisions.
Below are the key points from the CARES Act that impact the FFCRA provisions:
- The law provides clarification that the wage limitations provided in the Required Sick Leave and Family and Medical Leave Act under the FFCRA are for each employee that receives wages under either of these leave provisions.
- Paid leave now includes rehired employees if they were laid off by the employer not earlier than March 1, 2020 and worked at least 30 of the last 60 days prior to the employee being laid off and are rehired by the employer.
- The law provides a waiver of the failure to make deposit penalty for payroll taxes if it was in anticipation of receiving the credit under the provisions of the recently enacted laws.
The new law also contains several health-related provisions including free diagnostic testing for COVID-19 under all health plans and for the uninsured. In addition, the law provides a significant amount of additional funding and expanded benefits to programs already in existence including the expansion of unemployment benefits and waivers of certain unemployment insurance requirements.