Families First Coronavirus Response Act Provides 100% Refundable Tax Credit

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  • Contributors:
  • Trace Bauman
middle aged woman researches families first coronavirus response act on a tablet in her living room

As COVID-19 began spreading rapidly across the country, legislators went to work preparing the Families First Coronavirus Response Act (FFCRA). This Act became law on March 18, 2020, and guarantees free coronavirus testing, establishes paid sick leave, enhances unemployment insurance, and more.

We’ll cover three key highlights in this blog post: paid sick leave, expanded family and medical leave, and the tax credit for paying both types of leave. If you employ less than 500 employees, keep reading.

Emergency paid sick leave

According to the FFCRA, employers are required to provide up to two weeks – or 10 days – of  paid sick leave to employees at their regular rate of pay. Full-time employees can get up to 80 hours of paid sick leave. For part-time employees, it’s the average number of hours they work in two weeks. Employees can receive paid sick leave for any of the following reasons:

  • Receiving a positive diagnosis for COVID-19
  • Experiencing the symptoms of COVID-19 or self-quarantining per a health care provider’s recommendation
  • Following federal, state, or local orders to self-quarantine or isolate

The amount of paid sick leave employees receive can’t exceed $511 per day or $5,110 total.

In addition, employers are required to provide up to 10 days of paid sick leave to employees at two-thirds of their rate of pay if employees are unable to work because they’re:

  • Caring for an individual who’s in isolation or quarantine as recommended by a health care provider
  • Unable to work because their child’s school or place of care closes as a result of COVID-19
  • Experiencing a substantially similar condition to COVID-19, which the Secretary of Health and Human Services specifies

In these instances, the amount of paid sick leave employees receive can’t exceed $200 per day or $2,000 total.

Employers can’t require that employees use other forms of paid leave first. All employees, regardless of how long they’ve been employed, are eligible for emergency paid sick leave.

Emergency family and medical leave

The FFCRA expanded the Family and Medical Leave Act of 1993 (FMLA). Under this expansion, employers are required to provide employees with up to 12 weeks of emergency family and medical leave – 10 of which must be paid – if an employee is unable to work because their child’s school or place of care is closed as a result of COVID-19.

Employees can elect to use other forms of paid time off (i.e. vacation or personal time) during the first 10 days (2 weeks) of their emergency leave. The rate of pay for the remaining 10 weeks of leave is two-thirds the regular rate of an employee’s pay, up to $200 per day and $10,000 total.

Any employee who has been employed for at least 30 days can qualify for this extended leave. However, certain employers may choose not to provide paid sick leave and family leave to employees who are health care providers or emergency responders. Employers with 50 or fewer employees are exempt from providing expanded leave if it jeopardizes the viability of their business.

It’s possible for an employee to use both types of leave – paid sick leave and the expanded family and medical leave. If they do, they would receive a maximum of 12 weeks of paid leave.

How to report paid sick leave and family leave

The IRS requires employers to report the qualified sick and family leave payments made to employees in box 14 of Form W-2 or in a separate statement. Employers must separately state:

  1. the total amount of qualified sick leave wages paid because the employee was quarantined or diagnosed with COVID-19;
  2. the total amount of qualified sick leave wages paid because the employee was caring for someone sick with COVID-19; and
  3. the total amount of qualified family leave wages paid.

The IRS recommends employers use the following language when issuing Form W-2 or statements to employees. Employers can modify it as necessary.

“Included in Box 14, if applicable, are amounts paid to you as qualified sick leave wages or qualified family leave wages under the Families First Coronavirus Response Act. Specifically, up to three types of paid qualified sick leave wages or qualified family leave wages are reported in Box 14:

  • Sick leave wages subject to the $511 per day limit because of care you required;
  • Sick leave wages subject to the $200 per day limit because of care you provided to another; and
  • Emergency family leave wages.

If you have self-employment income in addition to wages paid by your employer, and you intend to claim any qualified sick leave or qualified family leave equivalent credits, you must report the qualified sick leave or qualified family leave wages on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, included with your income tax return and reduce (but not below zero) any qualified sick leave or qualified family leave equivalent credits by the amount of these qualified leave wages. If you have self-employment income, you should refer to the instructions for your individual income tax return for more information.”

View IRS Notice 2020-54 for more information on how to report paid sick and family leave.

 

Tax credit for paying qualified leave wages due to COVID-19

The FFCRA provides a 100% refundable tax credit for employers – including self-employed individuals –  who pay sick leave and expanded family and medical leave for COVID-19 related reasons. Businesses and tax-exempt organizations that employ fewer than 500 employees are eligible for the credit. You have fewer than 500 employees if, at the time an employee’s leave is taken, you employ fewer than 500 full-time and part-time employees within the US.

This tax credit is available from April 1, 2020, through March 31, 2021. Originally, the credit was set to expire on Dec. 31, 2020, but the COVID-Related Tax Relief Act of 2020 extended it to March.

The credit is a dollar-for-dollar reimbursement. It covers 100% of up to 80 hours of the qualified sick leave wages and up to 10 weeks of the qualified family leave wages paid during a calendar quarter. When calculating the credit, employers can include qualified health plan expenses and their share of Medicare tax on those wages.

Here are two examples.

  1. As an employer, you paid $6,000 in sick leave wages to employees. You have to deposit $10,000 in payroll taxes to the IRS. Because of the FFCRA, you can use the $6,000 spent on sick leave wages toward your payroll taxes. This decreases the amount you owe to $4,000.
  2. From the IRS, “An employer pays $10,000 in qualified sick leave wages and qualified family leave wages in Q2 2020. It doesn’t owe the employer’s share of social security tax on the $10,000, but it will owe $145 for the employer’s share of Medicare tax. Its credits equal $10,145, which include the $10,000 in qualified leave wages plus $145 for the employer’s share of Medicare tax. This example does not include any qualified health plan expenses allocable to the qualified leave wages. This amount may be applied against any federal employment taxes that the employer is liable for on any wages paid in Q2 2020.  Any excess over the federal employment tax liabilities is refunded in accordance with normal procedures. The employer must still withhold the employee’s share of social security and Medicare taxes on the qualified leave wages paid.”

Additional resources on the Families First Coronavirus Response Act

Originally published 3/27/2020. Updated 2/2/2021.

 

Have questions about the Families First Coronavirus Response Act? How to claim the tax credit? Let’s talk.