Families First Coronavirus Response Act
Updated 7.13.2020: The IRS recently issued Notice 2020-54 that provides employers with additional guidance regarding the reporting requirements for qualified sick and family leave wages paid to employees under the FFCRA. Based on this guidance, employers will be required to report the amounts paid under either of these provisions to an employee on Form W-2, Box 14, or on a separately provided statement (provided along with the Form W-2). The following amounts must be reported separately:
- Total Qualified Sick Leave wages for reasons (1), (2) and (3) below (wages subject to the $511 per day limit)
- Total Qualified Sick Leave wages for reasons (4), (5) and (6) below (wages subject to the $200 per day limit)
- Total Qualified Family Leave wages paid
These requirements will ensure that employees who are also self-employed will have the information necessary to claim additional credits they may be eligible for under the FFCRA.
Please review the IRS notice for specific language required to be used when reporting these amounts to employees as well as sample language that may be used to explain to employees what these additional amounts are related to.
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.
Since this law was enacted, both the IRS and the Department of Labor have provided an extensive list of questions and answers on their websites related to these new rules. If you need more information beyond the summary provided below, both of these are great resources:
Emergency Family and Medical Leave Expansion Act
- New FMLA requirements that are applicable to most employers with fewer than 500 employees, including tax-exempt entities.
- 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, including tax-exempt entities.
- 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.” However, if an employee is requesting sick leave for any reason other than caring for their child due to school/childcare closure, employers with fewer than 50 employees must still provide sick leave benefits to those employees.
- 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).
- Amounts paid under these provisions are subject to federal income tax withholding as well as the employee’s share of social security and Medicare taxes.
- Employers are not subject to the employer portion of social security tax (6.2%) imposed on qualified family and medical leave wages. Employers are still subject to their share of Medicare taxes (1.45%), however; the available credit is increased by this amount (discussed below).
- 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 are eligible for a fully refundable payroll tax credit equal to the following amounts:
- All wages paid under the Emergency Paid Sick Leave Act (limited to amounts required to be paid), plus
- All wages paid under the Emergency Family and Medical Leave Expansion Act (limited to amounts required to be paid), plus
- The allocable amount of costs the employer incurs to provide and maintain a group health plan on behalf of their employees during the leave period, plus
- The employer’s share of Medicare taxes (1.45%) associated with Sick Leave and/or Family and Medical Leave wages.
- Employers can reduce the amount of their otherwise required federal employment tax deposit (including amounts withheld from employees for federal income taxes, employees and employers share of Social Security and Medicare taxes) by the amount of anticipate credit.
- If the anticipated credit exceeds the otherwise required federal employment tax deposit, an employer may request an advance of their excess anticipated credit using IRS Form 7200 (Instructions). To expedite the processing of these forms, the IRS has provided a fax number for employers to use when submitting the completed forms.
- Amounts not deposited and/or received through an advanced credit request will have to be taken into account when filing Form(s) 941.
- The IRS has provided the following examples of how an eligible employer may receive these credits in advance of filing their Form 941:
- 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.
- 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).
- This credit can be claimed even if the employer has a PPP loan. However, the wages paid under these provisions are excluded from the “payroll cost” when determining loan forgiveness amounts.
- The credit does not apply to certain federal, state or local governments.
- Employers may elect to not claim these credits.
- There are also provisions within the law that allow self-employed individuals to claim a credit.
Lory H. Kelley Tax Partner, Tax Practice Area Leader, CPA
Lory is a tax and business consulting partner with Bernard Robinson & Company. With over 19 years of experience in her field, Lory applies her knowledge and practical ideas to meet the needs of her clients from both a business and tax perspective. She has a broad range of industry expertise with concentrations in […]