Our federal government has moved swiftly to provide certainty to American employers and workers about how to handle absences necessitated by the coronavirus. The Families First Coronavirus Response Act contains two main provisions that address employee absences – the Emergency Family and Medical Leave Expansion Act (“EFMLEA”) and the Emergency Paid Sick Leave Act (“EPSLA”). The following is a summary of the major employment and tax issues addressed by each:
This Friday, March 20 at 1:00 p.m. ET, Ulmer will be conducting a webinar to discuss the passage of the Families First Coronavirus Response Act. Click here if you would like to register for this event.
Emergency Family and Medical Leave Expansion Act
The EFMLEA provides expanded coverage under the FMLA for situations related to the coronavirus. This law becomes effective on April 2, 2020, 15 days after President Trump signed it into law, and will remain in place until December 31, 2020.
Which employers and employees are covered under this law?
When can an employee take leave under the EFMLEA?
What documentation is required to establish that the employee needs leave under the EFMLEA?
Is EFMLEA leave paid or unpaid?
What is the employer’s obligation to return the employee to work after the leave?
How shall an employer notify employees of this new leave of absence?
Emergency Paid Sick Leave Act
This section of the Families First Coronavirus Response Act also becomes effective on April 2, 2020, 15 days after President Trump signed it into law and will remain in place until December 31, 2020.
Which employers and employees are covered under this law?
When is an employee entitled to Emergency Paid Sick Leave?
An employee qualifies for Emergency Paid Sick Leave when the employee cannot work or telework because of one of the following:
Can an employee use Emergency Paid Sick Leave to cover the first 10 days of EFMLEA leave that is unpaid?
How does Emergency Paid Sick Leave work in conjunction with other paid time off already offered by the employer?
How much compensation will an employee be paid during Emergency Paid Sick Leave?
What documentation is required to establish that the employee needs Emergency Paid Sick Leave?
How shall I notify employees of Emergency Paid Sick Leave?
Payroll Credit for Required Paid Sick Leave
The Act allows employers to receive a refundable tax credit equal to 100% of qualified paid sick leave wages paid by the employer for each calendar quarter. Additionally, the credit may be increased by certain qualified health plan expenses that are allocable to the wages paid under the EPSLA. Qualified health plan expenses means amounts paid or incurred by an employer to provide and maintain a group health plan to the extent that the payments are not includible in the taxable income of employees under Section 106(a) of the Internal Revenue Code of 1986, as amended. That section excludes from an employee’s taxable income amounts paid by an employer for employer-provided coverage under an accident or health plan.
Employers may claim the credit to offset their obligation for the employer portion of Social Security taxes (6.2%) and the employer portion of the hospital insurance portion (1.45%). Qualified sick leave wages means wages that are required to be paid by the employer under the EPSLA. The amount of the credit depends on the reason for the sick leave. For qualified sick leave wages paid to employees who (i) are subject to a federal, state, or local quarantine order related to COVID-19, (ii) have been advised by a health care provider to self-quarantine due to concerns related to COVID-19, or (iii) experience symptoms of COVID-19 and seek diagnosis, the maximum amount of wages considered is capped at $511 per day. The cap is $200 for amounts paid to employees to care for a family member or a child whose school or place of care has been closed. If the total credit amount exceeds an employer’s liability for Social Security taxes, then the excess credit is refundable to the employer.
Payroll Credit for Required Paid Family Leave
The Act also provides a separate refundable tax credit equal to 100% of qualified family leave wages by an employer for each calendar quarter. This credit may also be increased by certain qualified health plan expenses allocable to the wages paid under the EFMLEA.
This credit can be used to offset the employer portion of Social Security taxes (6.2%) and the employer portion of the hospital insurance portion (1.45%). Qualified family leave wages are those wages required to be paid by the EFMLEA. 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. Employers will receive a refund for credits exceeding their liability for Social Security taxes.
Credit for Sick Leave for Self-Employed Individuals
Self-employed individuals are also afforded assistance under the Act. The credit provides for a refundable tax credit equal to 100% of the qualified sick leave equivalent amount for self-employed individuals subject to limitations discussed below. Self-employed individuals who care for a family member or for a child whose school or place of care has been closed due to coronavirus are eligible for a refundable tax credit equal to 67% of a qualified sick leave equivalent amount.
This credit is used to offset self-employment tax and is refundable. An individual is eligible for the credit if they would be entitled to receive paid sick leave under the EPSLA if the individual was an employee of an employer (other than himself or herself). For eligible self-employed individuals who (i) are subject to a federal, state, or local quarantine order related to COVID-19, (ii) have been advised by a health care provider to self-quarantine due to concerns related to COVID-19, or (iii) experience symptoms of COVID-19 and seek diagnosis, the qualified sick leave equivalent is capped at the lesser of $511 per day or 67% of the average daily self-employment income for the taxable year per day. If the eligible self-employed individual who is caring for a family member or child whose school or place of care has been closed due to coronavirus, the qualified sick leave amount is capped at the lesser of $200 per day of the average daily self-employment income for the taxable year per day. Individuals are limited to those days in which the individual is unable to work for reasons that would entitle him or her to leave under the EPSLA.
Credit for Family Leave for Self-Employed Individuals
Finally, the Act provides for a refundable tax credit equal to 100% of a qualified family leave equivalent amount for eligible self-employed individuals. As with the sick leave credit, this credit is allowed to offset self-employment tax and is refundable.
Eligible self-employed individuals are those who would be entitled to receive paid family leave under the EFMLEA if the individual was an employee of an employer (other than himself or herself). The equivalent amount is capped at the lesser of $200 per day or 67% of the average daily self-employment income for the taxable year per day, including only those days that the individual would be entitled to receive paid leave under the EFMLEA.
Ulmer’s Employment & Labor and Tax teams are available 24/7 to provide strategic advice and practical solutions as the COVID-19 crisis unfolds. Please let us know if you have any questions about the Families First Coronavirus Response Act – we are here to help.