Families First Coronavirus Response Act Offers Relief from COVID-19 Crisis

The Act introduces two tax credits for qualified employers providing paid leave

As part of the federal response to the COVID-19 pandemic, President Trump signed the Families First Coronavirus Response Act on March 18, 2020. The Act includes several relief efforts, including the introduction of an emergency paid leave program and a temporary payroll tax credit for qualified employers providing paid leave.  

The Act also provides for free COVID-19 testing, expands food assistance for low-income families, funds state unemployment insurance, and offers other assistance for employers and employees. 

The tax-related provisions in the Act primarily center around the emergency paid leave program, which temporarily expands paid sick leave as well as paid family and medical leave. These provisions are set to expire December 31, 2020. 

Which employers are required to provide paid leave under the Act?

Employers with fewer than 500 employees are required under the Act to provide paid leave to employees who are forced to stay home due to quarantining or to care for a family member. Businesses with fewer than 50 employees may be exempt from the requirements “when the imposition of such requirements would jeopardize the viability of the business.” Employers with more than 500 employees are not impacted by the Families First Coronavirus Response Act. 

Which employees qualify for paid leave under the Act?

Full-time employees are eligible for 80 hours of paid sick leave, and part-time employees are eligible for paid sick time based on the number of hours the employee would work, on average, over a two-week period. To qualify for paid sick leave, employees must have been employed for at least 30 calendar days and be unable to work due to any of the following: 

• Subject to a federal, state or local quarantine or isolation order related to COVID-19 

• Advised by a health care provider to self-quarantine due to concerns related to COVID-19 

• Experiencing symptoms of COVID-19 and seeking a medical diagnosis 

• Caring for someone who is quarantined or self-isolating 

• Caring for their child whose school or place of care is closed due to COVID-19 precautions 

• Experiencing any other “substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor” 

In addition, employees caring for a child under 18 years old are entitled to two-thirds of their average earnings for up to 10 weeks under expanded emergency paid family and medical leave. This benefit is capped at $10,000 per individual and is limited to employees who are unable to work because their child’s school or day care was closed due to COVID-19.  

Employees who are healthcare providers or emergency responders may be excluded from the paid leave provisions of the Act at their employer’s discretion. 

How does the tax credit work?

The Act provides a payroll tax credit to compensate employers and the self-employed for this mandated paid leave.  

• Paid sick leave credit: On a quarterly basis, employers can claim the paid sick time payroll tax credit equal to 100 percent of the qualified sick leave wages paid that quarter. If an employee is taking time off to care for themselves, the credit is capped at $511 per day ($5,110 total). If the employee is taking time off to care for another individual, the credit is capped at $200 per day ($2,000 total).  
• Paid family and medical leave credit: For employers who pay family and medical leave wages to qualified employees under the Act, a separate payroll tax provision allows a 100 percent credit against the employer’s share of the payroll tax for each employee, limited to $200 per day, or a total of $10,000 per employee.  

In both cases, the credit is refundable if it exceeds the amount the employer owes in payroll tax. 

For reporting purposes, employers will need to increase their gross income for the taxable year by the amount of payroll credit received. Additionally, any wages taken into account in determining this payroll credit can’t be considered in determining the amount of credit allowed under Internal Revenue Code Section 45S related to paid family and medical leave.  

If you have questions about how the tax-related provisions of the Families First Coronavirus Response Act may affect you or your business, contact a member of your Kaufman Rossin tax team.