Families First Coronavirus Response Act

Posted by Neely Munnerlyn 

On March 14, 2020, the U.S. House of Representatives passed H.R. 6201, entitled The Families First Coronavirus Response Act (the “Act”).  The House approved certain technical corrections to the Act on March 16, 2020, and the revised version was approved by the Senate on March 18, 2020.  The Act, which has been signed into law by President Trump, requires covered employers to provide up to 80 hours of paid sick leave to employees for absences related to Coronavirus/COVID-19 (“qualified sick leave benefits”).  It also amends the Family and Medical Leave Act (“FMLA”) to provide temporary additional reasons for leave related to Coronavirus/COVID-19 and requires covered employers to provide pay for such FMLA leaves that extend beyond two weeks at a reduced rate (“qualified FMLA benefits”).  For purposes of private employers, the Act applies only to employers with fewer than 500 employees.  It becomes effective no later than 15 days after enactment and expires on December 31, 2020.

In order to help offset the cost of the additional paid leave, the Act provides refundable payroll tax credits through 2020 to covered employers who are required to pay additional wages to employees for absences related to Coronavirus/COVID-19. Specifically:

• A covered employer may claim a credit against the employer’s portion of FICA taxes for a calendar quarter in an amount equal to the qualified sick leave wages paid by the employer during such quarter plus certain qualified health plan expenses paid by the employer with respect to such wages.  The wages that may be taken into account for determining the amount of the credit are limited to $511/day per employee if the employee is receiving sick leave for themselves or $200/day per employee if the sick leave is to care for a family member or a child following the child’s school closing.  Further, the total number of days that the employer can take into account with respect to a particular employee for that quarter cannot exceed 10 days less the total number of days taken into account with respect to such employee for all previous quarters.
• Also, a covered employer may claim a credit against the employer’s portion of FICA taxes for a calendar quarter in an amount equal to the qualified FMLA benefits paid by the employer plus certain qualified health plan expenses paid by the employer with respect to such wages.  The wages for each employee that may be taken into account for determining the amount of this credit are limited to $200/day per employee (not to exceed $10,000 in the aggregate for all quarters).
• The qualified sick leave and qualified FMLA benefits are not “wages” for the employer portion of the Social Security tax, so the credit is applied to payroll taxes on other wages.  The benefits are “wages” subject to the employee portion of the Social Security tax and to both the employer and employee portion of the Medicare tax (although the amount of the credits described above are increased by the employer’s portion of the Medicare tax on such wages).   
• The credit for either the qualified sick leave wages or the qualified FMLA benefits cannot exceed the total employer portion of payroll taxes imposed on all wages paid by the employer to all of its employees during such quarter.  If the amount of either credit were to exceed the amount the employer owed in payroll taxes on a quarterly payroll tax filing, the excess is treated as an overpayment and is refundable. 
• If an employer elects to receive either the qualified sick leave credit or the qualified FMLA credit, the amount of the credit must be taken into the employer’s gross income.  This is to offset the tax deduction and eliminate any potential windfall to the employer.  Likewise, any wages taken into account in determining the qualified sick leave or qualified FMLA credit may not be taken into account for purposes of determining the credit under IRC Section 45S (the employer credit for family and medical leave).
• The legislation also provides similar refundable credits against self-employment taxes. 

If you have any questions, please contact the above author or the T&K tax attorney with whom you regularly work.