Refundable Tax Credits Available to Cover Emergency Paid Sick Leave and Paid FMLA

On March 18, 2020, the Families First Coronavirus Response Act (Act) was signed into law. The Act becomes effective on April 1, 2020, and will expire on December 31, 2020. The two major provisions of the Act that significantly impact employers with fewer than 500 employees are: (1) The Emergency Paid Sick Leave Act which requires employers to provide employees with two weeks of paid sick leave for certain COVID-19 related reasons; and (2) The Emergency Family and Medical Leave Expansion Act which provides eligible employees up to 12 weeks (10 weeks paid) of FMLA-protected leave for COVID-19 related reasons. We provide a full summary of the Act here: UPDATED WITH EASY TO FOLLOW FLOW CHARTS: Congress Passes Emergency Paid Sick Leave & FMLA Changes Applicable to Many Employers.

Businesses are entitled to receive 100% refundable tax credits to pay for the paid sick leave and paid FMLA-protected leave required by the Act (including qualified health plan expenses). Employers will be authorized to retain any federal taxes they would normally deposit at payroll with the federal government to cover the expenses associated with compliance with the Act. These include an employee's federal income taxes, and share of Social Security and Medicare taxes, along with the employer's share of Social Security and Medicare taxes with respect to all employees, not only those on paid leave (totaling 15.3% of an employee's wages plus the employee’s applicable federal tax withholding). If the retention of these payroll taxes is insufficient to cover the cost of leave paid, employers will be able to file a request for an accelerated reimbursement payment from the IRS.

The U.S. Department of Labor issued guidance on Friday, March 20, 2020: https://www.dol.gov/newsroom/releases/osec/osec20200320.

Then, on Tuesday, March 24, 2020, the DOL's Wage and Hour Division issued further guidance with Fact Sheets for Employees, Employers and FAQs: https://www.dol.gov/newsroom/releases/whd/whd20200324.

More guidance and forms are expected to be issued this week and we will update as appropriate. Contact your payroll provider and legal counsel for advice on compliance with the Act before it goes into effect on April 1, 2020.