IRS and DOL Unveil Employer Tax Credits for Coronavirus-Related Leaves

Small and midsize businesses can retain funds from payroll taxes

Stephen Miller, CEBS By Stephen Miller, CEBS March 27, 2020
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taking sick leave

Employers with fewer than 500 employees can quickly begin taking advantage of two new refundable payroll tax credits designed to reimburse them, dollar for dollar, for the cost of providing leave to employees affected by COVID-19, the respiratory illness caused by the coronavirus. The Internal Revenue Service (IRS) and the Department of Labor (DOL) unveiled the plan in a March 20 press release.

The announcement clarifies how employers can obtain relief under the Families First Coronavirus Response Act (FFCRA), signed by President Donald Trump on March 18. The act, effective April 1 through the end of 2020, provides that the federal government will reimburse small and midsize businesses and nonprofit organizations for costs related to giving employees paid leave, either for the employee's own health needs or to care for family members.

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Coronavirus and COVID-19

Fast Funds

"To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes," the agencies said.

If an employer is paying out more in COVID-19-required leave than its payroll tax liability, "the employer can immediately file for a refund on forms that the IRS expects to issue" shortly, according to law firm Hanson Bridgett. The IRS expects to process these refunds within two weeks under a new, expedited procedure.

The IRS will post more information about these credits, once available, on its Coronavirus Tax Relief page. Eligible employers will be able to claim these credits based on qualifying leave they provide between April 1 and Dec. 31, 2020.

Equivalent credits are available to self-employed individuals who become ill or must care for a family member.

Help with Cash Flow

"Employers have been clamoring for guidance on the timing of reimbursement by the federal government for any paid leave they provide their employees after the law goes into effect," blogged Jeff Nowak, an attorney with Littler in Chicago. "Many employers have had to make difficult furlough and termination decisions worried about whether they would even have the cash flow to cover any paid leave mandates while waiting months, even a year, before the feds reimburse them."

As written, "the law simply was not realistic or workable as to employer tax credits, since the employer would be reimbursed at some later date—some weeks, months or even a year later—after the coronavirus damage had already been done," Nowak explained.

Under the new guidance, however, "the IRS made clear that employers would be able to recoup these payments immediately by keeping a portion of the deposit they otherwise would pay as part of their employees' federal, social security and Medicare taxes. This is welcome news."

Notably, Nowak said, employers will be able "to draw funds from the payroll and income tax they withhold from or pay on behalf of all employees and not just those to whom they must provide paid leave under the new statute."

Temporary Nonenforcement

The DOL said it would not bring an enforcement action against employers for any violations of the new leave requirements within the first 30 days the law is in effect, so long as the employer is acting in good faith to comply, Nowak noted. Good faith is shown when violations are remedied "as soon as practicable," the violations are not willful and the DOL receives a written commitment from the employer to comply with the FFCRA in the future.

[SHRM members-only HR Q&A: How Does the Families First Coronavirus Response Act (H.R. 6201) Impact Employers?]

Effective Dates Clarified

The IRS followed up on March 27 with Notice 2020-21, which provides that the tax credits for qualified sick leave wages and qualified family leave wages required to be paid by the FFCRA will apply to wages paid from April 1, 2020, through Dec. 31, 2020. The original press release had said the credits would be available starting April 2.

Paid-Leave Requirements

Among the paid-leave requirements under the FFCRA:

  • Eligible employers must provide two weeks (up to 80 hours) of paid sick leave at 100 percent of an employee's pay if the employee is unable to work because he or she is quarantined or experiencing symptoms associated with COVID-19 and seeking a medical diagnosis.
  • Eligible employers must provide two weeks (up to 80 hours) of paid sick leave at two-thirds of an employee's pay if he or she is unable to work because of a need to care for someone subject to quarantine, if he or she must be absent to care for a child whose school is closed or whose child care provider is unavailable for reasons related to COVID-19, or if the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services.
  • In certain circumstances, employees who are unable to work because of a need to care for a child whose school is closed or whose child care provider is unavailable may receive up to an additional 10 weeks of paid leave at two-thirds of the employee's pay.

Employers are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed or for whom child care is unavailable if the viability of the business would be threatened by doing so.

The IRS gave these examples of how the new guidance would work:

  • If an eligible employer pays $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.
  • If an eligible employer pays $10,000 in sick leave and is otherwise required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and could file a request for an accelerated credit for the remaining $2,000.

DOL Requests Employer Feedback

Employers can share their ideas with the Department of Labor as it develops guidance on the Families First Coronavirus Response Act. Participate online at https://ffcra.ideascale.com through Sunday, March 29. 

The DOL will use the ideas and comments gathered from this dialogue to develop compliance assistance guidance, resources and tools, as well as outreach approaches that assist employers and workers in understanding their responsibilities and rights under the paid leave provisions of the FFCRA.



Related SHRM Articles:

DOL Issues Workplace Posters on Employees' Right to Paid Coronavirus Leave, SHRM Online, March 2020

Confused About the Coronavirus Paid-Leave Mandate? DOL Issued Some Guidance, SHRM Online, March 2020

Many Employers Must Offer Paid Leave Under Coronavirus Relief Law, SHRM Online, March 2020

Health, Wellness and Leave Benefits Help Employees with Coronavirus, SHRM Online, March 2020



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