sick leave tax credits

Written by Barry Ward, Leader, Production Business Management and Director, OSU Income Tax Schools

In our recent Farm Office Live webinars, we’ve discussed the paid sick leave provisions in the Families First Coronavirus Response Act.  The new law recognizes that many employees have been forced by COVID-19 to stay home rather than report to work.  In such cases, the law obligates employers to provide paid sick leave but also gives federal tax credits to employers for doing so.  Here’s a summary of how the law works.

Emergency paid sick leave provision

Employers with less than 500 employees are required to provide paid sick leave to employees who are unable to work (or telework) if they have become ill with COVID-19, have similar symptoms, or must provide care to someone with COVID-19 issues.  Employees who have to care for children due to school or day care closure are also eligible for partial paid sick leave. Employers are required to provide 100 percent of the usual pay rate to an employee if they have COVID-19 or the related symptoms, up to $511 per day. If they’re unable to work due to the need to care for an affected individual or to care for children due to school or daycare closure, the employee must be paid 2/3rds of their usual pay rate up, up to $200 per day.

The following chart summarizes the requirements.

Employee situation

Employer requirements

Employee has COVID-19 related illness

Must provide two weeks (80 hours) of 100% sick-pay, capped at $511/day

Employee is caring for individual with COVID-19 related illness

Must provide two weeks (80 hours) of 2/3rds of sick-pay, capped at $200/day

Employee is caring for children because school or childcare is closed due to COVID-19

Must provide two weeks (80 hours) of 2/3rds of sick-pay, capped at $200/day

Expanded family leave provision

A second provision, the expanded family leave provision, requires employers to provide employees with up to 12 weeks of leave for COVID-19-related needs.  This leave requirement applies to employees who are unable to work due to having to care for children whose school or daycare is closed or unavailable because of COVID-19.   The first ten days of the expanded family leave are unpaid (a deductible of sorts), although the employee can use the “emergency paid sick leave provision” or accrued sick leave to cover these days if necessary.  After the first ten days, the employee is eligible to receive 2/3rd of regular pay for the remaining ten weeks, capped at $200 per day.

Note that employers with fewer than 50 employees are eligible for an exemption where the viability of the business would be threatened.  The exemption applies to the requirements to provide leave to care for a child whose school is closed or if child care is unavailable.

Employer tax credits to fully compensate for required leave

This new law provides corresponding refundable tax credits to equal all required leave provided by an employer whether the leave was required and provided under the emergency paid sick provision or the expanded family leave provision.  The credits are refundable payroll tax credits, designed to immediately and fully reimburse employers, dollar-for-dollar, for the cost of providing the required leave to their employees.

To receive the credit, employers hold on to payroll withholding as offset. Payroll withholding that can be held as this tax credit includes withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.  If this amount isn’t enough to provide the full tax credit due the employer, the employer will have to file a return with the IRS.  More information on how to claim these credits is available at: https://www.irs.gov/newsroom/covid-19-related-tax-credits-how-to-claim-the-credits-faqs

Additional details are available on the U.S. Department of Labor’s “Families First Coronavirus Response Act: Employer Paid Leave Requirements” page, here: https://www.dol.gov/agencies/whd/pandemic/ffcra-employer-paid-leave

 

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