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Families First Coronavirus Response Act (“FFCRA”) Paid Leave Tax Credits

Update September 23, 2020

The Families First Coronavirus Response Act (“FFCRA”) has not received as much attention as the Paycheck Protection Program (“PPP”), but it was Congress’ first attempt at providing relief to employers in the initial stages of the COVID-19 pandemic. The FFCRA provides businesses with several tax credits that reimburse employers dollar-for-dollar for the cost of providing employees with paid sick leave and expanded family and medical leave between April 1, 2020 and December 31, 2020, for reasons related to COVID-19. 

Emergency Paid Sick Leave Credit (“EPSL”) 

This credit is available when an employer continues to pay an employee who is unable to work because of COVID-19 government mandated quarantine, has been advised by a health care provider to self-quarantine, or has coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a refundable sick leave credit for paid sick leave.  

  • This credit is equal to the employee’s regular rate of pay, up to $511 per day (up to $5,110 in the aggregate), for a total of 10 days (up to 80 hours).  

Alternatively, if the employer continues to pay an employee who is unable to work because they are caring for someone with COVID-19, or is caring for a child because the child’s school or child care facility is closed, or for whom the child care provider is unavailable due to COVID-19, the employer is also able to claim a reduced EPSL credit.  

  • This credit is equal to two-thirds of the employee’s regular rate of pay, up to $200 per day (up to $2,000 in the aggregate), for up to 10 days (up to 80 hours) 

Emergency Family Leave Credit (“EFMLA”) 

In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to COVID-19 (and the employee cannot work or telework, and the employer’s business is not closed), eligible employers may receive a refundable child care leave credit.   

  • This credit is equal to two-thirds of the employee’s regular pay, capped at $200 per day (up to$10,000 in the aggregate). Up to 10 weeks of qualifying leave can be counted towards the child care leave credit.   
  • EFMLA gives employees 12 weeks of leave, the first two weeks of which may be unpaid. The remaining 10 weeks of qualifying leave can be counted towards the EFMLA credit.

Employers can receive FFCRA credits and have a PPP loan. However, wages and health plan expenses for which the employer takes a credit are not eligible for PPP loan forgiveness.  

Qualified Health Expenses During Leave 

All employers are required to continue group health coverage while employees are taking EPSL or EFMLA leave.  Eligible employers are entitled to additional tax credits for qualified health expenses incurred during leave.  Qualified health expenses are amounts paid by the employer to maintain a group health plan during the leave, which include:  

  1. The average costs of maintaining a group plan.  The IRS has provided guidance on how employers can calculate the tax credit for purposes of the health credit.  

Employer contributions toward the employee’s HRA or health FSA (note HSA contributions are not considered qualified health expenses).  

Employee Retention Credit under the CARES Act 

This provision allows eligible employers a refundable payroll tax credit equal to 50 percent of qualified wages paid to employees from March 13, 2020 through December 31, 2020. The credit is provided for the first $10,000 of compensation ($5,000 maximum credit)including health benefits paid to an eligible employee.  Health benefits are computed in the same manner as under the FFCRA discussed above.   

An employer with more than 100 full-time employees in 2019 is an “eligible employer” if its operations were fully or partially suspended as a result of a coronavirus-related shut-down order. In this instance, qualified wages are those paid when employee services are not provided, limited to 30 days per employee.  

An employer with 100 or fewer full-time employees in 2019 is an eligible employer if its gross receipts declined more than 50 percent as compared to the same quarter in the previous year. In this instance, all employee wages are credit-eligible, and the credit is available regardless of whether or not the business was closed.  

Employers receiving a Paycheck Protection Program loan are not eligible for the Employee Retention credit.   

Credits and PPP Interaction Recap 

  • Employers receiving a Paycheck Protection Program loan are not eligible for the Employee Retention credit.  
  • Employers can receive the Employee Retention Credit under the CARES Act and FFCRA credits, but cannot claim both credits for the same wages.  
  • Employers can receive FFCRA credits and have a PPP loan. However, wages and health plan expenses for which the employer takes a credit are not eligible for PPP loan forgiveness  

Considerations 

You will need to work closely with your payroll company on how to provide them with the information necessary to compute the credits on your payroll tax returns.   

Eligible employers are entitled to immediately receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and the employer’s share of Medicare tax on the leave, for the period of April 1, 2020, through Dec. 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees.   

How will employers receive the credit? 

Employers can be immediately reimbursed for the credit by reducing their required payroll tax deposits by the amount of the credit.   

Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter of 2020  

If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.   

We hope you find this information helpful, and, as always, please let us know if you have any questions.      

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