Families First Coronavirus Response Act
FAMILIES FIRST CORONAVIRUS RESPONSE ACT
The Families First Coronavirus Response Act, has been signed by the President and includes mandatory paid leave requirements and related tax credits that will affect many small businesses. These new rules are effective April 2, 2020.
Required Paid Leave
Employers with fewer than 500 employees are now required to provide two weeks of paid sick leave and up to twelve weeks of family and medical leave for certain issues related to COVID-19. Covered issues include the employee being quarantined by government order, self-quarantined upon advice of a healthcare provider, or exhibiting symptoms and seeking a diagnosis. In addition, employees are eligible for reduced sick leave if they are caring for someone who is quarantined or caring for a child whose school or childcare was closed.
The paid sick leave must be paid at the employee’s regular pay rate if the employee is personally affected or two-thirds the normal rate for the reduced sick leave.
The first two weeks of family and medical leave may be unpaid leave, paid sick leave, or covered by another form of paid leave. The following ten weeks must be paid at two-thirds of the employee’s normal rate.
Exceptions may apply for employers with fewer than 50 employees if providing the leave would jeopardize the business’s ability to continue.
Payroll Tax Credit
Employers are now eligible for a refundable payroll tax credit for paying the mandated leave. The refundable payroll tax credit equals wages paid under the new mandate (up to daily maximums) plus employer’s share of Medicare plus employer’s cost for health insurance. The net cash effect to the employer of paying the mandated leave and offsetting payroll tax credit should be zero, assuming the paid leave does not exceed certain thresholds.
Employee Treatment
Employees are still subject to their normal income tax, Social Security, and Medicare withholding on any paid leave they receive.
Self-Employed Taxpayers
Self-employed taxpayers are allowed an income tax credit equivalent to the payroll tax credits when they file their 2020 tax returns. This credit is allowed if the self-employed taxpayer is unable to work because they are affected by COVID-19 for the same covered issues as an employee (see above).
If you are self-employed and unable to work due to COVID-19, you will need to keep track of the days you were sick, quarantined, or caring for a child whose school or childcare was closed. This information will be necessary to claim the credit on your personal tax return for 2020.
Prompt Payment for Providing Mandatory Leave
The IRS issued guidance stating they want to ensure employers receive prompt payment for providing this mandatory leave. As of writing this post, that guidance has not been finalized. However, the IRS has indicated that employers may be able to delay remitting their employee withholding and/or request an accelerated payment from the IRS so they don’t have to wait for their quarterly payroll returns to be reimbursed. More information to follow.
Please contact your Copeland Buhl representative if you are impacted by these new requirements and need additional assistance.