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Cost Recovery for COVID-19 Related Employees’ Leave

General / Mar 25, 2020

Pursuant to the Families First Coronavirus Response Act (“FFCRA”), signed by President Trump on March 18, 2020, the U.S. Treasury Department, Internal Revenue Service (“IRS”), and the U.S. Department of Labor (“Labor”) introduced on March 20, 2020, a legislation to enable employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.

Accordingly, businesses and tax-exempt organizations with fewer than 500 employees (“Eligible Employers”), will be able to claim refundable payroll tax credits, designed to immediately and fully reimburse, for the cost of providing Coronavirus-related leave to their employees, between the effective date (no later than April 2nd) and December 31, 2020.  Equivalent credits are available to self-employed individuals based on similar circumstances.

Paid Leave

Eligible Employers can receive two weeks (up to 80 hours) of paid sick leave at 100% of the employee’s pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis (“Quarantined Employees”).

An employee who is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or child care provider is unavailable for reasons related to COVID-19 (“Guardian Employees”), and/or the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services can receive two weeks (up to 80 hours) of paid sick leave at 2/3 the employee’s pay. In some instances, such employees may receive up to an additional ten weeks of expanded paid family and medical leave at 2/3 the employee’s pay.

Eligible Employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Paid Sick Leave Credit

For Quarantined Employees, Eligible Employers may receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.

For Guardian Employees, Eligible Employers may claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days.

Eligible Employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Child Care Leave Credit

In addition to the sick leave credit for Guardian Employees, Eligible Employers may receive a refundable childcare leave credit. This credit is equal to 2/3 of the employee’s regular pay, capped at $200 per day or $10,000 in the aggregate. Eligible Employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Prompt Payment for the Cost of Providing Leave

Typically, employers are required to withhold from their employees’ paychecks federal income taxes and the employees’ share of Social Security and Medicare taxes, and to deposit these federal taxes, along with their share of Social Security and Medicare taxes (“Payroll Taxes”), with the IRS and file quarterly payroll tax returns (Form 941 series) with the IRS.

Under guidance that will 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, with respect to all employees.

If there are not enough Payroll Taxes to cover the cost of qualified sick and childcare 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.

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.

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 childcare unavailability where the requirements would jeopardize the ability of the business to continue. Labor will provide emergency guidance and rulemaking to clearly articulate this standard.

Non-Enforcement Period

Labor will provide a period of time for employers to come into compliance with the FFCRA, in which it will not bring an enforcement action against any employer for violations of the FFCRA so long as the employer has acted reasonably and in good faith to comply with the FFCRA. Labor will instead focus on compliance assistance during the 30-day period.

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