COVID-19 Update: Tax Credits Available for Employers; First Guidelines Issued

March 23, 2020

News related to the recent federal legislation has been coming fast and furious. We know that employers with fewer than 500 employees have to provide two weeks of paid leave for those who are diagnosed with COVID-19 to a maximum of $511 per day, and two weeks to family caregivers caring for children who are displaced from schools and care facilities up to a maximum of $200 per day (learn more: Families First Coronavirus Response Act Signed into Law). This will take effect no later than April 2, 2020; we are waiting from additional guidance from the Department of Labor to explain details concerning this Sick Pay. Additionally, parents and caregivers will also be granted Expanded FMLA leave to care for children and retain their positions. The first two weeks of this leave are unpaid, or at the election of the employee, can be paid using existing paid time off. The remaining time will be aid at up to $200 per day.

To assist employers in paying for the Sick Pay and the Expanded FMLA, tax credits are being granted. The IRS issued the first guidelines on how those tax credits will work on March 20, 2020. IR-2020-57 is the first federal agency guidance related to the Sick Pay, the Expanded FMLA, and the tax credits.

Under guidance to be released next week, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.

The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.

If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced next week.

In addition, eligible employers are entitled to a tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Both the Families First Coronavirus Response Act and IR-2020-57 talk about a small business exemption. Small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or child care unavailability where the requirements would jeopardize the ability of the business to continue. The exemption will be available on the basis of simple and clear criteria that make it available in circumstances involving jeopardy to the viability of an employer’s business as an ongoing concern. The Department of Labor will provide emergency guidance and rule-making to clearly articulate this standard.

As these laws and guidance are being issued rapidly, the Department of Labor has indicated that it will give employers a period of time to come into compliance with the Act. Under this policy, the Department of Labor will not bring an enforcement action against any employer for violations of the Act so long as the employer has acted reasonably and in good faith to comply with the Act. The Department of Labor will instead focus on compliance assistance during the 30-day period.

If you have any questions related to this post, please reach out to me.

Theodore T. Storer, Partner




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