On Friday, March 20, 2020, the Internal Revenue Service (IRS) issued a News Release, IR 2020-57 (Release), that describes the new paid leave benefits for certain employees of small and medium-sized businesses under the Families First Coronavirus Response Act (Act). In addition, the Release explains how employers will be subsidized by the federal government through payroll tax credits and reimbursements.
In the Release, the IRS announced that the goal of the payroll tax credits is to make the new paid family and sick leave benefits both cost neutral and cash-flow neutral for employers. This has been a very serious concern for small businesses, which have been worried about having to shoulder additional costs when they are already struggling financially because of the health crisis.
Previewing IRS guidance that is expected to be published next week, among other mechanisms for reimbursement, the Release highlights that eligible employers who pay qualifying sick or family leave may be able to retain an amount of the payroll taxes they would normally remit to the IRS (equal to the amount of qualifying sick and family leave that they paid). The payroll taxes that will be available for retention include 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.
Whether these assurances from the IRS will be enough to calm small employers remains to be seen. Some employers already have made the difficult decision to conduct layoffs and terminate their employees to preserve cash in the hopes that they can reopen soon. The requirement to pay benefits under the Act goes into effect on April 2, 2020. Additional guidance from the IRS and the U.S. Deportment of Labor is expected soon, including how small employers with fewer than 50 employees can obtain an exemption from the Act when the new paid leave would jeopardize the viability of the business as a going concern.
