As most employers know, President Trump signed the Families First Coronavirus Response Act (FFCRA) on March 18. The Emergency Family and Medical Leave Act (EFMLA) portion of the FFCRA provides up to 12 weeks of partially paid coronavirus-related job-protected family leave to employees. The Emergency Paid Sick Leave Act (EPSLA) portion of the FFCRA provides up to two weeks of paid leave (80 hours for full-time employees) for certain COVID-19 related absences. Both of these FFCRA sections apply only to employers with fewer than 500 employees.

The FFCRA provides a refundable tax credit equal to 100 percent of qualified EFMLA and EPSLA wages paid by an employer for each calendar quarter. This FAQ aims to answer some basic questions about those tax credits based on guidance recently released by the Treasury Department, IRS and Labor Department.

Who is eligible to receive the tax credits?

Businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the FFCRA.

What is the amount of tax credit for an employer providing paid sick leave to a sick employee under the EPSLA?

Employees who are absent due to their own COVID-19 related illness are eligible for paid sick leave at the employee's regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days. Eligible employers who pay this sick pay are entitled to receive a refundable sick leave credit equal to the amount paid to the employees under the EPSLA. Eligible employers are entitled to an additional tax credit based on costs the employer incurs to maintain health insurance coverage for the eligible employee during the leave period

What is the amount of tax credit for an employer providing paid sick leave to an employee who is caring for someone with coronavirus or a child who is out of school under the EPSLA?

If an eligible employee is out of work because he or she is caring for someone with coronavirus or a child who is out of school, the employee may receive paid leave from the employer equal to two-thirds of the employee's regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Again, eligible employers who pay the sick pay are entitled to claim a tax credit for the amount paid to the employee. Eligible employers are also entitled to an additional tax credit based on costs the employer incurs to maintain health insurance coverage for the eligible employee during the leave period.

What is the amount of tax credit for an employer providing additional time off under the EFMLA to an employee who cannot work because they must care for a child who is out of school due to coronavirus?

If an employee is unable to work because he or she is caring for a child out of school due to coronavirus, that employee is entitled to partial pay under the EFMLA. Employers can receive a child care leave credit equal to two-thirds of the employee's regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of leave can be counted towards the child care leave credit. Eligible employers also are entitled to an additional tax credit based on costs to maintain health insurance coverage for the eligible employee during the leave period.

How will employers quickly get the tax credit?

The IRS will provide an immediate dollar-for-dollar tax offset against payroll taxes that would otherwise be owed by the employer. If the credit exceeds the employer’s payroll tax liability, the employer is entitled to a refund, and the IRS pledges to send the refund to the employer as quickly as possible. When employers pay their employees, they are typically required to withhold from employee paychecks federal income taxes and the employees' share of Social Security and Medicare taxes. The IRS will soon be issuing guidance providing instruction to employers who pay sick or childcare leave about retaining an amount of payroll taxes that would normally be deposited with the IRS.

What if there are insufficient payroll taxes to cover the cost of paid sick/childcare leave?

Employers can file a request for accelerated refund payment with the IRS. The IRS expects to process these requests in two weeks or less and will announce procedures for obtaining funds soon.

How does this all work in practice?

The IRS provides the following 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 of its employees, the employer could receive a tax credit of up to $5,000. The employer would then be required to deposit only the remaining $3,000 on its next deposit date.

• If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in payroll taxes, the employer could receive a credit of $8,000 and file a request for a refund for the remaining $2,000.

• An eligible employer must include the amount of the credit in income. An employer who pays $5,000 of sick leave to employees gets a $5,000 payroll tax credit or refund, includes $5,000 in income, and may take a $5,000 deduction for the sick leave paid.

Are health insurance costs included in the tax credit?

Yes.

Will employers have any payroll tax liability for payments made pursuant to the FFCRA?

No.

Will my business be in trouble if I make an error regarding these tax credits?

The Department of Labor (DOL) has announced that it has a 30-day nonenforcement policy that provides a period of time for employers to come into compliance with the FFCRA. DOL will not bring an enforcement action against an employer for violation of the FFCRA provided that the employer acted in good faith in trying to comply with the Act. To guarantee compliance, employers should work with experienced legal counsel to ensure that the tax credits are being properly taken.