Families First Coronavirus Response Act and the Paid Sick and Family Leave Credit
By Aurora Eager Leavitt, Staff Accountant, Tax & Business Services
The Families First Coronavirus Response Act was signed into law March 18, 2020, and became effective as of April 1, 2020. The Act requires certain employers to provide employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19. These provisions will apply from the effective date through December 31, 2020.
Summary
Employers with fewer than 500 employees must provide Emergency Family and Medical Leave Pay of up to 12 paid weeks. Businesses with fewer than 50 employees can apply for an exemption from the Secretary of Labor. Sick leave is taken if the employee is sick or needs to quarantine due to an exposure to coronavirus. Family leave can be taken to care for a sick family member or to care for children unable to attend school or daycare due to coronavirus-related closures.
Credit Available
There is a payroll tax credit available to employers who pay wages to employees on these types of leave.
The provision for the credit applies to leave taken April 1, 2020, through December 31, 2020. The amount and type of credit the employer is eligible for will be determined based on the reason the employee is taking a leave. The credit is calculated based on employee wages and type of leave: paid sick leave or paid family leave.
The maximum credit is capped at $10,000 per employee. Employees are eligible for two weeks of paid sick leave, which is deductible by the employer at the employee’s regular rate of pay up to $511 per day. If an employee is eligible for family or medical leave, the employee could be eligible for an additional 10 weeks of paid leave, which is deductible by the employer at two-thirds the employee’s regular rate of pay, up to $200 per day.
The credit can be used to reduce payroll tax deposits. This credit is refundable in the event an employer pays more qualified wages than tax due. Click here to view the chart on the IRS website can help guide the employer to available credits.
The IRS released an updated Form 941: Employer’s Quarterly Federal Tax Return in order to incorporate this new credit. The IRS has also created a new worksheet to help calculate the credit available to the employer within “Worksheet 1.” Step 2 of the worksheet allows the employer to calculate the amount of eligible credit and what amount may be refundable. The refundable portion of the credit is limited. Both the new Form 941 and Worksheet 1 can be found at the IRS website at the links below.
Form 941
Worksheet 1 (Pg.14)
Note that self-employed individuals entitled to receive sick or family leave can claim a tax credit to offset self-employment taxes when filing their form 1040.
Please do not hesitate to contact your Marcum tax professional with any questions regarding this new credit and how to incorporate it into future payroll filings.
Coronavirus Resource Center
Have more questions about the impact of the coronavirus on your business? Visit Marcum’s Coronavirus Resource Center for up-to-date information.
