By Mike Fine
Following the passage of H.R. 6201 by the Senate on March 18, 2020, known as the Families First Coronavirus Response Act, President Trump signed the Act into law shortly thereafter. The Act is the first relief measure passed in response to the COVID-19 outbreak in the United States; however, it is expected that more aid will be forthcoming.
The Act provides for paid sick leave, free COVID-19 testing, food assistance, unemployment benefits, and implements certain requirements of employers with less than 500 employees. Additionally, the Act makes available a number of tax credits to employers and self-employed individuals to help cover the costs associated with the COVID-19 outbreak. Below is a summary of the relevant provisions of the Act:
Emergency Paid Sick Leave
The Emergency Paid Sick Leave Act requires employers with fewer than 500 employees under the Family and Medical Leave Act (“FMLA”) to provide to each employee paid sick time to the extent that the employee is unable to work (or telework) due to a need for leave because of:
- The employee is subject to a Federal, State, or local quarantine;
- The employee has been advised by a health care provider to self-quarantine;
- The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
- The employee is caring for an individual who is subject to either paragraphs (1) or (2);
- The employee is caring for a child who’s school or place of care has been closed or unavailable due to COVID-19 precautions; or
- The employee is experiencing any other substantially similar conditions specified by the Secretary of Health and Human Services.
Employers required to provide paid sick leave as a result of any of the above must furnish 80 hours leave to full-time employees. The amount of pay is 100% of the employee’s regular rate up to a maximum of $511 per day ($5,110 total) if the employee himself/herself is ill, as outlined above, but is 2/3 regular rate for those caring for a child capped at $200 per day ($2,000 total). For part-time employees, the number of hours required to be provided is equal to the average hours that such employee works over a 2 week period. Moreover, any employee who is subject to a multi-employer collective bargaining agreement may receive sick pay based upon a proportional allocation of hours worked for each employer.
Finally, as a way to defray the associated costs of the above for employers, wages paid under this provision are exempt from the employer’s portion of Social Security tax and an additional payroll tax credit is allowed for in the amount of Medicare tax paid on those wages.
FMLA Emergency Expansion
Under the Act, FMLA requirements have also been expanded, allowing for employees who are caring for a minor child to receive two-thirds of their average earnings for up to 10 weeks. Employees are eligible for this expanded benefit if they are unable to work either onsite or remotely as a result of a minor child’s school or day care remaining closed due to COVID-19. The pay is calculated at 2/3 the employee’s regular rate and is capped at $200 a day, for a maximum amount of $10,000 per individual. Similar to the emergency paid sick leave benefit above, wages paid under this provision are exempt from the employer’s portion of Social Security tax and an additional payroll tax credit is allowed for in the amount of Medicare tax paid on those wages.
An employee is eligible for such expanded benefit if they have been employed for at least 30 calendar days by the employer when leave is requested. Similar to traditional FMLA leave, any leave claimed under this provision is job-protected and an employer must return the employee to the same or equivalent position upon a return to work.
Finally, the Act empowers the U.S. Department of Labor to issue further regulations to exempt small employers with fewer than 50 employees; however, at this time no such regulations have been issued.
Available Tax Credits for Employers
In an attempt to defray the significant costs required to be provided by employers, the Act created the following tax credits:
- A refundable tax credit for employers equal to 100 percent of qualified family leave wages required to be paid by the employer for each calendar quarter. The tax credit is allowed against the tax imposed by section 3111(a) (the employer portion of Social Security taxes). The amount of qualified family leave wages taken into account for each employee is capped at $200 per day and $10,000 for all calendar quarters. If the credit exceeds the employer’s total liability under section 3111(a) for all employees for any calendar quarter, the excess credit is refundable to the employer.
- A refundable tax credit for employers equal to 100 percent of qualified paid sick leave wages paid by an employer for each calendar quarter. The tax credit is allowed against the tax imposed by section 3111(a) of the Internal Revenue Code (the employer portion of Social Security taxes).
- For both of the above credits, an employer will be required to increase their gross income for the taxable year by the amount of the credit received.
Additionally, relief was given for self-employed individuals or those who are a part of the gig-economy allowing for them to claim a credit against their income taxes related to sick or family leave. The credit covers 100 percent of self-employed individuals’ daily self-employment income or 67 percent if an individual is taking care of a child whose school is closed. The per-day amount is limited to the lesser of an individual’s average daily self-employment income, or $511 per day if caring for themselves or $200 if caring for a minor child. The number of eligible days is limited to 10 if related to sick leave and 50 if related to family leave. Subsequent guidance from the Treasury will be issued to help self-employed individuals understand what documentation will need to be provided in order to claim the credit.