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Focus on Taxation: President Signs into Law Coronavirus Relief Act

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On March 18, 2020, President Trump signed into law the Families First Coronavirus Relief Act. In addition to providing free COVID-19 testing, access to meals for children required to stay home from school and extended unemployment insurance, the bill includes benefits for employees and employers impacted by the pandemic. 
March 19, 2020

On March 18, 2020, President Trump signed into law the Families First Coronavirus Relief Act. In addition to providing free COVID-19 testing, access to meals for children required to stay home from school and extended unemployment insurance, the bill includes benefits for employees and employers impacted by the pandemic, including:

  1. Paid emergency family and medical leave for employees;
  2. Paid sick leave for employees; and
  3. Tax credits for employers for providing paid family and sick leave.

Paid Emergency Family and Medical Leave

The bill expands the existing Family and Medical Leave Act of 1993 by requiring employers with fewer than 500 employees to provide up to 12 weeks of job-protected leave. The emergency leave is available when the employee is unable to work due to a need to care for a son or daughter under 18 years of age if the child’s school or place of care has been closed due to COVID-19.

The first two weeks of leave may be unpaid; after the first two weeks of unpaid leave, employers must continue paid leave at a rate of no less than two-thirds of the employee’s usual rate of pay. The paid leave is capped, however, at $200 per day or $10,000 in the aggregate per employee. Wages paid for family and medical leave are not subject to the employer’s 6.2% share of the Social Security tax.

It is worth noting that the Labor Department can exempt employers with fewer than 50 workers from having to pay these benefits if it “would jeopardize the viability of the business.” It is still unclear if exemptions will apply to this rule.

Paid Sick Leave

The bill also provides for up to 80 hours of paid sick leave to full-time employees, as well as paid leave to part-time employees based on a formula. Sick leave is available for the following six reasons:

  1. The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19.
  2. The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19
  3. The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.
  4. The employee is caring for an individual who is subject to quarantine or has been advised to self-quarantine. 
  5. The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID-19 precautions.
  6. The employee is 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.

Employers must compensate employees for any paid sick time they take at their regular rates of pay (unless the leave is being used to care for a family member or child as described in reasons 4-6 above, in which case the employee is only entitled to two-thirds of his or her regular rate of pay). Compensation is capped at $511 per day and $5,110 in the aggregate for employees taking sick leave for reasons 1-3 above, and $200 per day and $2,000 in the aggregate for employees taking leave for reasons 4-6. The sick leave is available for immediate use by employees, regardless of length of employment.

Wages paid for sick leave are not subject to the employer’s 6.2% share of the Social Security tax.

Tax Credits for Paid FMLA and Sick Leave and Grant of $1 Billion for Emergency Unemployment Insurance

To assist employers in providing the required family and sick leave, the bill provides a series of refundable tax credits, including:

  • A refundable tax credit for employers equal to 100% of qualified family leave wages that are paid for each calendar quarter. The credit is allowed against the 6.2% employer portion of Social Security payroll taxes.  The amount of qualified family leave wages taken into account for each employee aligns with the maximum required leave pay, and thus is capped at $200 per day and $10,000 in aggregate for each employee, for each calendar quarters. If the credit exceeds the employer’s total share of the Social Security tax for all employees for any calendar quarter, the excess credit is refundable to the employer.
  •  A refundable tax credit for employers equal to 100% of qualified paid sick leave wages that are paid by an employer for each calendar quarter. The tax credit is also allowed against the 6.2% employer portion of Social Security payroll taxes. The amount of qualified paid sick leave wages taken into account for each employee and for each calendar quarter is capped at $511 per day and $5,110 in the aggregate for sick leave paid for reasons 1-3 above, and $200 per day and $2,000 in the aggregate for leave paid for reasons 4-6 above. If the credit exceeds the employer’s total share of the Social Security tax for all employees for any calendar quarter, the excess credit is refundable to the employer.
  • Both credits are increased by an amount equal to the employer’s “qualified health plan expenses” that are properly allocable to the qualified family leave wages or qualified paid sick leave wages for which the credit is allowed. Qualified health plan expenses are amounts paid by an employer to provide and maintain a group health plan, but only to the extent that the amounts are excluded from the gross income of the employee.
  • Similar credits are available for self-employed taxpayers, with those credits available to offset income taxes.

The proposed leave and proposed sick leave changes, as well as the adoption of the new tax credits, take effect not later than 15 days after enactment and would remain in place until the end of 2020.

RubinBrown will continue to keep you up to date with relevant news and changing guidelines as they unfold. Please contact your RubinBrown team member if you have questions about how these provisions may affect you.

By: Tony Nitti, CPA, MST
Partner-In-Charge
National Tax
609.658.9593
tony.nitti@rubinbrown.com

Readers should not act upon information presented without individual professional consultation. 

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

 

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