TAX CREDIT FOR QUALIFIED PAID SICK LEAVE AND FAMILY LEAVE WAGES DURING COVID-19

On: November 4, 2020

To address the COVID-19 crisis, the Families First Coronavirus Response Act (the “FFCRA”) was approved by Congress and then signed into law on March 18, 2020 by President Trump.

The FFCRA includes the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act, which require that certain employers provide certain employees facing certain COVID-19 circumstances with certain sick leave and family leave benefits.

To help employers pay these added employee benefits, the FFCRA also creates a tax credit for qualified paid sick leave and family leave wages.

Tax Credit for Qualified Paid Sick Leave Wages

Under Section 7001 of the FFCRA, employers are allowed to claim a tax credit for “qualified sick leave wages”, which are required to be paid by reason of the Emergency Paid Sick Leave Act.

The Emergency Paid Sick Leave Act generally requires employers with fewer than 500 employees to provide up to 80 hours of paid sick leave for an employee unable to work because the employee is (1) under a COVID-19 quarantine or isolation order, (2) advised to self-quarantine due to COVID-19, (3) experiencing COVID-19 symptoms and seeking a medical diagnosis, (4) caring for an individual generally subject to either condition (1) or (2) above, (5), caring for a child if the school or place of care of the child has been closed, or the child care provider of such child is unavailable, due to COVID-19, or (6) experiencing any other substantially similar condition specified by the U.S. Department of Health and Human Services.

Employees subject to conditions (1), (2), or (3) above are entitled to paid sick leave based on their regular rate of pay, or any higher applicable minimum wage, up to $511 per day.  Employees subject to conditions (4), (5), or (6) above are entitled to paid sick leave based on 2/3 of their regular rate of pay, or any higher applicable minimum wage, up to $200 per day.

Tax Credit for Qualified Paid Family Leave Wages

Under Section 7003 of the FFCRA, employers are allowed to claim a tax credit for “qualified family leave wages”, which are required to be paid by reason of the Emergency Family and Medical Leave Expansion Act.

The Emergency Family and Medical Leave Expansion Act generally requires employers with fewer than 500 employees to provide up to 10 weeks of paid family leave for an employee unable to work because of condition (5) above.  Employees are entitled to paid family leave based on 2/3 of their regular rate of pay, up to $200 per day.

Utilization of Tax Credit for Qualified Paid Sick Leave and Family Leave Wages

The tax credit for qualified paid sick leave and family leave wages can be used to offset, and thereby in effect pay, applicable employment taxes.

In addition, on Form 7200, “Advance Payment of Employer Credits Due to COVID-19”, because the tax credit for qualified paid sick leave and family leave wages is refundable, if the credit exceeds applicable employment taxes, a business can receive a current advance payment of the excess amount of credit.  This advance payment helps a business with critically needed cash during COVID-19.

If you need tax help, always make sure to call Leading Tax Group and don’t attempt to do it yourself.