On Friday, March 20, 2020, the IRS, along with the DOL and the U.S. Treasury Department, announced that employers may begin to take advantage of the tax credits for small and midsize businesses for Coronavirus-related paid leave for workers. These credits are intended to immediately and fully reimburse employers for the cost of providing Coronavirus-related leave to employees.
- Paid Sick Leave for Workers – Complete Coverage. Employers will receive 100% reimbursement for paid leave pursuant to the Act. It appears that eligible employers will be entitled to an additional tax credit determined based on costs to maintain health insurance coverage for an eligible employee during the leave period. Employers will face no payroll tax liability and self-employed individuals will also receive an equivalent credit.
- Reimbursement and Credits. Reimbursements will be quick and easy to obtain. An immediate dollar-for-dollar tax offset against payroll taxes will be provided. Where a refund is owed, the IRS will send the refund as quickly as possible. Businesses will be able to retain and access funds that they would otherwise pay to the IRS in payroll taxes. 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. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form. The IRS expects to process these requests in two weeks or less. The details and forms related to this new, expedited procedure will be announced next week.
- Small Business Protection. Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed, or child care is unavailable in cases where the viability of the business is threatened. However, guidance on the requirements and process for qualifying for such an exemption remain unclear.
- Easing Compliance. The DOL will be issuing a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the Act. Under this policy, the DOL will not bring an enforcement action against any employer for violations of the Act so long as the employer has acted reasonably and in good faith to comply with the Act. Labor will instead focus on compliance assistance during the 30-day period.
Paid Sick Leave Credit
As a reminder, for an employee who is unable to work because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis, 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 an employee who is caring for someone with Coronavirus, or is caring for a child because the child’s school or child care facility is closed, or the child care provider is unavailable due to the Coronavirus, 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.
Child Care Leave Credit
In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed, or whose child care provider is unavailable due to the Coronavirus, eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee’s regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit.
We know the federal and state response to COVID-19 will significantly intersect with your businesses. We are monitoring both federal and state bills and administrative guidance closely and will do our best to keep you informed during these trying times. Meanwhile, if you have any questions on these new regulations, please contact Jennifer Weaver or your Manning Fulton relationship attorney.