Congress and the President recently enacted the Families First Coronavirus Response Act (the “Act”). Division C of the Act requires employers with fewer than 500 employees to provide emergency paid sick leave and emergency paid family leave to qualified employees who are unable to work due to health or family care obligations related to coronavirus (“Paid Leave”). Division G of the Act compensates employers for expenditures on Paid Leave with a corresponding payroll tax credit. A detailed explanation of the new law, which goes into effect on April 2, 2020, is available here.
Any employer who pays an employee under the Act is entitled to a tax credit (the “Tax Credit”) equal to the full amount of wages paid under the Act, subject to certain limitations. For purposes of the Tax Credit, the term “wages” includes an employee’s salary and other compensation and the pro rata cost of an employee’s group health insurance for the period coinciding with the Paid Leave he or she receives under the Act. However, for purposes of the Tax Credit, the term wages does not include tips or reimbursed expenses.
The Tax Credit is a quarterly credit based on the amount of wages paid under the Act as Paid Leave. The Tax Credit is refundable if it exceeds the total of the employer’s portion of Social Security payroll taxes for that quarter, net of any tax credits for employing veterans or for small business research expenses. The Tax Credit is also limited to the amount of Paid Leave payable under the Act, meaning that an employer will not receive a Tax Credit for any sick or family leave the employer voluntarily pays (such as under an existing employee leave policy) but which was not required Paid Leave under the Act. Employers also must add the amount of the Tax Credit into their reportable gross income for that year.
The Tax Credit will remain in effect for all wages paid under the Act between April 2, 2020 and December 31, 2020. The Treasury Department is working to issue further regulations and guidance with respect to this Tax Credit.
FOR MORE INFORMATION
Please contact Heather Rider Hammond or your attorney at Gravel & Shea PC if you have questions.
Note: The information provided in this Bulletin is general in nature and is not offered, and should not be construed, as tax or legal advice with respect to any particular matter