On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (the “Act”), which, in addition to providing emergency funding for new mandates and reimbursement of costs related to COVID-19 testing, includes measures for expanded sick leave and supplemental funding for state unemployment insurance funds, as well as a number of provisions granting tax relief and tax credits related to coronavirus sick leave for small businesses, individuals, and the self-employed.
The Act provides a refundable tax credit equal to 100% of qualified sick leave wages paid (beginning on a date chosen by Treasury during the 15-day period from the date of enactment, and ending on December 31, 2020) by an employer in each calendar quarter, allowable against the employer portion of Social Security and Medicare taxes. Qualified sick leave wages are wages required to be paid by any employer (other than health care providers and emergency responders) with fewer than 500 employees under the Emergency Paid Sick Leave Act (Division E), not exceeding 10 days in the calendar year. The amount paid to employees is capped at $511 per day if it is paid so that the employee can:
- Self-isolate because the employee is diagnosed with coronavirus;
- Obtain a medical diagnosis or care if such employee is experiencing the symptoms of coronavirus; or
- Comply with a recommendation or order by a public official with jurisdiction or a health care provider on the basis that the physical presence of the employee on the job would jeopardize the health of others because of the exposure of the employee to coronavirus or exhibition of symptoms of coronavirus by the employee.
There is a lower amount available for reimbursement for employees who are on leave to care for a family member, or amounts paid as required by a separate section of the bill that expands the Family and Medical Leave Act (Division C) to cover family leave specifically for childcare. In addition, a separate overall cap of $10,000 was provided for wages paid as family leave under the Family and Medical Leave Act expansion.
The credit is refundable (to the employer) to the extent it exceeds the employer’s total Social Security and Medicare tax liability for any calendar quarter. Wages taken into account in determining the credit are not to be taken into account in determining the credit allowed under section 45S. No credit is allowed under section 45S (employer credit for paid family and medical leave) for wages for which a credit is allowed under the Act. The credit is includible in gross income for income tax purposes. Wages required to be paid pursuant to the Act are not considered wages for Social Security purposes.
There is a parallel credit for eligible self-employed individuals, refundable and allowable against income taxes.
Treasury is given broad authority to issue regulations and guidance necessary to carry out the purposes of the law. Secretary Mnuchin has said that to protect businesses concerned about cash flow, Treasury will use its regulatory authority to advance funds to employers in a number of ways. He has said that employers will be able to use cash deposited with the IRS to pay sick leave wages, and that for businesses that would not have sufficient taxes to draw from, Treasury will use its regulatory authority to make advances to small businesses to cover such costs.
The passage of this bill follows the announcement by the IRS of an extension to the payment of income taxes due April 15, 2020 and is one of numerous actions being taken by the government to combat the business interruptions and lost income of individuals caused by COVID-19. In addition, the Senate has been working on a separate stimulus package with projections of up to $1 trillion of direct subsidies to taxpayers and businesses.
Please contact your Mazars USA LLP professional for additional information.
This alert was produced in conjunction with Ivins, Phillips & Barker, Chtd.