The Families First Coronavirus Response Act provides tax credits to reimburse employers for the costs of providing paid sick leave and paid family and medical leave to employees unable to work because of the coronavirus (COVID-19). These credits are refundable. That means if the amount of the credit exceeds the amount of tax owed, the remainder is refunded to the business or organization.
The law is intended to allow employers to keep employees on their payrolls, while at the same time making sure employees aren't forced to choose between their paychecks and public health measures needed to combat COVID-19.
These credits are available to eligible employers beginning April 1, 2020, for qualifying leave they provide between April 1, 2020, and December 31, 2020.
Eligible employers are businesses and tax-exempt organizations with fewer than 500 full-time and part-time employees within the United States or any U.S. territory or possession and that have to meet employer-paid leave requirements. The Questions and Answers and regulations issued by the U.S. Department of Labor have more information about the 500-employee threshold and the paid leave requirements.
The law allows equivalent credits for self-employed individuals in similar circumstances. For details, see specific provisions related to self-employed individuals in the COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs.
Paid sick leave requirement and credit
Employees of eligible employers who are unable to work or telework because they're quarantined or experiencing COVID-19 symptoms and seeking a medical diagnosis can receive up to 80 hours of paid sick leave. This pay is at their regular rate of pay or, if higher, the applicable minimum wage, up to $511 per day and $5,110 in total.
Employees can receive up to 80 hours of paid sick leave at 2/3 of their regular pay or, if higher, the applicable minimum wage, up to $200 per day and $2,000 in total. Employees can receive this benefit if they need to care for:
an individual subject to quarantine,
a child whose school or place of care is closed, or
a child whose child-care provider is unavailable,
due to COVID-19 or because they're experiencing similar conditions as specified by the U.S. Department of Health and Human Services.
An employee is eligible for paid sick leave, regardless of length of employment.
The eligible employer is entitled to a fully refundable tax credit equal to the required paid sick leave wages. Eligible employers can also get an additional credit for the employer's share of Medicare tax imposed on the qualified sick leave wages and the cost of maintaining health insurance coverage for the employee during the sick leave period. The employer is not subject to the employer portion of Social Security tax on those wages.
Paid family and medical leave requirement and credit
In addition to the paid sick leave credit, an employee who is unable to work or telework because of a need to care for a child whose school or place of care is closed or whose child-care provider is unavailable due to COVID-19, is entitled to paid family and medical leave equal to 2/3 of the employee's regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted toward the paid family leave credit.
An employee qualifies for paid family and medical leave if they've been on an employer's payroll for 30 calendar days or more.
The eligible employer is entitled to a fully refundable tax credit equal to the required paid family leave wages. Eligible employers can also get an additional credit for the employer's share of Medicare tax imposed on those wages and its cost of maintaining health insurance coverage for the employee during the family leave period. The eligible employer isn't subject to the employer portion of Social Security tax on those wages.
Example. An employee's child-care provider is unavailable indefinitely due to the COVID-19 outbreak, leaving the employee unable to work or telework because of the need to care for their child. For up to the first 80 hours of any period of leave to care for their child, the employee is entitled to qualified sick leave wages, up to $200 per day and $2,000 in total. After that, the employee is entitled to qualified family leave wages for up to 10 weeks of additional leave needed, up to $200 per day and $10,000 in total.
How to claim the credits
Eligible employers report their total qualified leave wages and the related credits for each quarter on their federal employment tax return, usually Form 941, Employer's QUARTERLY Federal Tax Return. They can receive the benefit of the credits by reducing their federal employment tax deposits for that quarter by the amount of the qualified leave wages, allocable qualified health plan expenses, and the employer's share of Medicare tax on the wages. They'll account for the reduction in deposits due to the leave credits on the Form 941 they file at the end of the quarter. The IRS recently posted Frequently Asked Questions about the ability both to reduce deposits for the credits and to defer the deposit of all of the employer's portion of Social Security tax due before January 1, 2021 under a separate provision in the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
If employers don't have enough federal employment taxes to cover the amount of the credits