The U.S. Treasury Department, Internal Revenue Service (IRS), and Department of Labor (DOL) announced plans to allow small and midsize employers to begin claiming two new refundable payroll tax credits, designed to immediately and fully reimburse them for the cost of providing COVID-19-related leave to their employees [IR-2020-57, 3-20-20]. The agencies are moving swiftly to implement the Families First Coronavirus Response Act (Pub. L. 116-127), which was signed into law on March 18, 2020.
Public Law 116-127 requires private employers with fewer than 500 employees and all government employers to provide paid sick leave for two weeks (up to 80 hours) at 100% of the employee’s pay when an employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis. An employee who is unable to work because of a need to care for an individual subject to quarantine, or to care for a child whose school is closed or whose child care provider is unavailable for reasons related to COVID-19, can receive two weeks (up to 80 hours) of paid sick leave at 2/3 the employee’s pay. An eligible employee who is unable to work due to a need to care for a child whose school is closed, or whose child care provider is unavailable for reasons related to COVID-19, may receive up to an additional 10 weeks of expanded paid family and medical leave at 2/3 the employee’s pay.
Employer Tax Credits
The IRS intends to release guidance this week allowing eligible employers that pay qualifying sick or child care leave to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit that amount with the IRS. Employers will be able to retain withheld federal income tax and the employee share of FICA taxes, plus the employer share of FICA taxes for all employees. If not enough payroll taxes are withheld to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less.
The multiagency announcement included two examples.
- If an eligible employer paid $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 paid $10,000 in sick leave and was 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 file a request for an accelerated credit for the remaining $2,000.
Exemption for Small Businesses
Public Law 116-127 includes an exemption for small businesses with fewer than 50 employees where providing paid sick and/or family leave related to school closings or child care unavailability would jeopardize the ability of the business to continue. The DOL will provide emergency guidance and rulemaking to clearly articulate the criteria to qualify for the exemption.
The DOL will issue guidance allowing for a temporary non-enforcement policy to provide time for employers to comply with the new requirements. Employers that act reasonably and in good faith to comply with the requirements will not face enforcement actions by the DOL. Instead, the DOL will focus on compliance assistance.
To learn more about federal and state laws, regulations, and information to keep your company's payroll operations in compliance, check out Payroll Source Plus!
Curtis E. Tatum, Esq., is Director of Federal Payroll Compliance for the APA.