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Tax Credits for Employers Under Emergency Paid Leave Requirements

The Families First Coronavirus Response Act, requires most employers with fewer than 500 employees to provide up to 2 weeks of paid sick leave and up to 12 weeks of FMLA (10 weeks paid) to employees for certain coronavirus-related reasons.  Sick leave payments can be as high as $5,110 per employee and FMLA payments can be as high as $10,000 per employee.  The U.S. Department of Labor and the Internal Revenue Service announced details on how these payments are reimbursable to employers through a tax credit.

Employers (except government employers) are eligible to receive 100% reimbursement for paid leave provided pursuant to the legislation.  (Note this would not apply to other paid leave the employer provides, even for coronavirus-related reasons.)  Health insurance costs are also included in the credit.  Employers face no federal payroll tax liability for the payments.  Self-employed individuals receive an equivalent credit.

The reimbursement is in the form of an immediate dollar-for-dollar tax offset against payroll taxes.  If a refund is owed, the IRS will send the refund as quickly as possible through an expedited procedure to be announced next week.  A news release states from the Department of Labor states, “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.  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.”

Child-care leave and sick leave credit is available to self-employed individuals under similar circumstances. These credits will be claimed on the individual’s income tax return and will reduce estimated tax payments.

Although the legislation goes into effect on April 1, 2020, the requirements of the paid sick leave program will be subject to 30-day non-enforcement period for good faith compliance efforts.

The Labor and Employment attorneys at Berchem Moses can help you implement sick leave and FMLA requirements to meet all your legal obligations.  Please call us if we can be of assistance.