President Signs Second COVID-19 Emergency-Aid Package, Extends Paid Leave to More Employees and Provides Employers With Tax Credits by Andreea Cioara, CPA
On March 18, President Trump signed into law the Families First Coronavirus Response Act (FFCRA), offering much needed relief to many American families and businesses in the wake of the COVID-19 pandemic.
Among the provisions included in this second package of aid are the Emergency Paid Sick Leave Act (“The Paid Sick Leave”) and the Emergency Family and Medical Leave Expansion Act (“The Expanded Paid Sick Leave”), which provide for paid sick and family leave, expanded unemployment and nutrition assistance, free coronavirus testing for individuals who need it, and ultimately providing employers with refundable tax credits to cover the cost of employee absence.
It is critical that businesses understand the requirements they must meet to assist workers, while managing all the limitations, restrictions or exemptions that may preclude them from qualifying for the refundable tax credits. Below is a summary of the financial assistance provided to employees and employers under the two sick leave provisions of the FFCRA, the Paid Sick Leave and The Expanded Sick Leave.
Financial Assistance to Employees
The Paid Sick Leave Provisions
The final version of the Emergency Paid Sick Leave Act mandates employers with less than 500 employees to provide paid sick leave to full-time and part-time employees who are unable to work due to any of the following reasons:
- The employee is subject to a federal, state or local quarantine or isolation order due to COVID-19.
- The employee has been advised by a healthcare provider to self-quarantine due to concerns related to COVID-19.
- The employee is experiencing symptoms of COVID-19 and seeking medical diagnosis.
- The employee is caring for another individual who is subject to a government-mandated isolation order or who has been advised by a physician to self-quarantine.
- The employee is caring for a minor child whose school or place of care has been closed, or the child care provider is unavailable due to COVID-19 precautions.
- The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Resources, Secretary of the Treasury and the Secretary of Labor.
Under this law, qualifying full-time employees will be entitled to two weeks, or 80 hours, of paid sick leave at their regular rate of pay with a cap of $511 per day (and $5,110 in the aggregate) until December 31, 2020. For part-time workers, the number of eligible paid sick-leave days will vary based on the average number of hours calculated in accordance with the provisions under the law.
Employees who take sick leave to care for family members will receive no more than two-thirds of their regular rate of pay, capped at $200 per day and $2,000 in the aggregate.
Businesses must provide this assistance to all workers, regardless of an employee’s length of employment. In addition, while they may require workers to follow specific procedures for requesting paid sick leave, businesses may not dictate whether employees must use other forms of paid leave before or after this specific relief.
The Expanded Paid Sick Leave Provisions
The FFCRA expands certain employees’ eligibility for paid sick leave under the Family Medical Leave Act (FLMA) when they are unable to work remotely because they must care for a minor child (age 18 or younger) whose school or daycare center has closed due to COVID-19 precautionary measures, or as a result of a public health emergency.
Under this provision, workers employed for a minimum of 30 days by a business with fewer than 500 employees may receive up to 12 weeks of protected leave without the fear of losing health insurance coverage. The first 10 days of leave may be unpaid, unless the employee chooses to use other forms of paid leave, such as vacation days, other paid time off, or FFRCA Paid Sick Leave. For the remaining days of the 12-week FMLA coverage period, employees should generally receive two-thirds of their pay, with a cap of $200 per day and $10,000 in the aggregate. This relief is available to eligible workers until December 31, 2020.
When an eligible employee goes back to work, employers must restore them to the same position or equivalent with the same pay and benefits as his or her original job. However, the FFCRA provides an exception to this rule for employers with less than 25 employees, who may apply for an exemption from FMLA coverage when economic conditions and/or public health emergencies require them to change business operations and/or eliminate specific jobs, roles or positions. Additional exemptions also apply to businesses in the healthcare industry.
Financial Assistance to Employers
To help employers pay workers’ wages and qualified health plan expenses as described above, the FFCRA provides qualifying businesses with a refundable tax credit for qualified leave wages paid by the employer under the Paid Sick Leave or the Extended Paid Sick Leave provisions, as well as for qualified health plan expenses allocable to such wages.
The tax credit is first applied to reduce an employer’s portion of Old Age, Survivors and Disability Insurance Taxes, also known as Social Security Taxes. Any excess is provided as a direct overpayment refundable to the employer.
Credit Amount under The Paid Sick Leave Provisions
Under the Paid Sick Leave Provisions, an employer receives a federal income tax credit for the first 10 days of an employee’s paid sick leave of $511 per day. The credit is limited to $200 per day if the employee utilized the sic- time benefit to care for minor children, or for experiencing substantially similar conditions described above.
Credit Amount under The Expanded Paid Sick Leave Provisions
Under the Expanded Paid Leave Provisions, an employer receives a federal income tax credit for the full term of an employee’s additional leave, up to the 12 weeks permitted under the law. The tax credit is limited to $200 per day, and $10,000 in total for each employee.
Additional benefits and limitations, including further rules for eligibility, apply to these credits. Self-employed individuals may also be eligible. Businesses should further note that the IRS will require them to add the credit amount they receive as gross income to their tax return, to prevent a double benefit.
The COVID-19 pandemic and the government’s response are rapidly evolving situations. Individuals and businesses must be cautious of published commentary and advice until facts are verified and proposals are actually signed into law. Please contact us for further information or specific guidance to your situation.
About the Author: Andreea Cioara Schinas, CPA, is a director in the Tax Services practice of Berkowitz Pollack Brant Advisors + CPAs practice, where she provides corporate tax planning for clients through all phases of business operations, including formation, debt restructuring, succession planning and business sales and acquisitions. She can be reached in the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000, or via email at email@example.com.