H.R. 6201, the “Families First Coronavirus Response Act”, which was passed on March 18, 2020, enacted two refundable tax credits to provide relief amidst the COVID-19 (Coronavirus) pandemic. We outline the credits below.
Paid Sick Leave Refundable Credit
Conditions: Certain employers (less than 500 employees) are required to provide an employee with paid sick time to the extent that the employee is unable to work or telework due to a need for leave because:
- The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
- The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
- The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
- The employee is caring for an individual who is subject to an order described in clause 1) or has been advised as described in clause 2);
- The employee is caring for the employee’s son or daughter if the school or place of care of the son or daughter has been closed, or the childcare provider of such son or daughter is unavailable due to COVID-19 precautions;
- The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.
- Quarterly credit claimed against Social Security tax imposed on the employer.
- Credit is refundable if it exceeds the Social Security tax for the quarter.
- 100% of qualified sick leave wages
The provision defines qualified sick leave wages as wages and compensation paid by an employer which are required to be paid by reason of Division E of the bill, the Emergency Paid Sick Leave Act. As described below, the credit may be increased by certain health plan expenses of the employer.
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- 1, 2, 3 – credit may not exceed $511 for any day
- 4, 5, 6 – credit may not exceed $200 per day
- Maximum 10 days per individual
- Can add a proportionate amount of health insurance premiums to the credit.
Paid Family Leave Refundable Credit
This requirement generally applies when an employee is unable to work or telework due to a need for leave to care for a son or daughter under age 18 because the school or place of care has been closed, or the childcare provider is unavailable, due to a public health emergency. The bill defines a public health emergency as an emergency with respect to COVID- 19 declared by a Federal, State, or local authority. An employer that is required to provide this additional family and medical leave is allowed a tax credit in respect of the leave.
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- The first 10 days of public health emergency leave required under the Emergency Family and Medical Leave Expansion Act may consist of unpaid leave after which paid leave is required. The paid leave is for the duration of the period provided in the Emergency Family and Medical Leave Expansion Act, which is a maximum of 10 weeks. The amount of required paid leave under the provision is based on an amount not less than two-thirds of an employee’s regular rate of pay, and the number of hours the employee would otherwise be normally scheduled to work.
- Quarterly credit claimed against Social Security tax imposed on the employer.
- Credit is refundable is it exceeds Social Security tax for the quarter.
- 100% of qualified family leave wages.
- Maximum $200 per day and $10,000 in aggregate, per employee.
- Can add a proportionate amount of health insurance premiums to the credit.
Under the provision, any wages or compensation required to be paid to employees by reason of the Emergency Family and Medical Leave Expansion Act and the Emergency Paid Sick Leave Act are not considered wages of the employer for purposes of FICA tax. As a result, no federal employment taxes will be collected on such amounts from employers or employees to be contributed to the OASDI.
If you have questions regarding either of these refundable tax credits, please reach out to your personal Sciarabba Walker contact or email us at info@swcllp.com.