March 19, 2020
On March 18, 2020, President Trump signed the Families First Coronavirus Response Act (the “Act’) into law. Along with providing emergency paid sick leave to certain employees affected by COVID-19, expanded Family and Medical Leave Act (“FMLA”) benefits, free COVID-19 testing, and bolstered food assistance and unemployment benefits, the Act includes tax relief for employers to help cover the cost of these sick leave benefits. Employers will initially have to cover the cost for the new coronavirus emergency sick leave and FMLA benefits, but some costs can be recouped through payroll tax credits through the end of 2020. However, no credits for paid leave will be provided to employers who already receive tax benefits for a qualifying leave program under the Tax Cuts and Jobs Act.
Additionally, wages paid as coronavirus sick leave are not subject to the employer’s portion of social security taxes, and an additional credit is available for Medicare tax paid on the wages.
Payroll Tax Credits to Cover Costs of COVID-19 Sick Leave
The payroll tax credit provided under the Act can be claimed on a quarterly basis, equal to 100% of the amount of sick leave wages paid pursuant to the Act (subject to limits). The credit for the emergency paid sick leave is limited to $511 per day if an employee is taking time off to care for themselves, and $200 per day if the sick leave is to care for an individual who is quarantined, showing symptoms of COVID-19, or a minor child whose school is closed. This credit is further limited to 10 sick days per worker. For wages paid under the expanded FMLA benefits, the credit is limited to $200 per day, per employee, and cannot exceed $10,000, per employee. These payroll tax credits are refundable if they exceed the amount the employer owes in payroll tax. Further guidance from the Treasury Department is expected on how employers apply these credits as they file their employment tax returns.
The amount of payroll tax credits received by employers must be included in their gross income for the taxable year. This is not intended to nullify the credit, but to prevent a double benefit: one being the credit and the other being the income tax deduction for the wages.
Relief for Self-Employed Individuals
Self-employed individuals also receive tax relief under the Act. Self-employed taxpayers are eligible for a refundable tax credit against the self-employment tax equal to the self-employed person’s “qualified sick leave equivalent amount.” The qualified sick leave equivalent amount is equal to the number of days, up to 10 days, that the person can’t work (for a reason that would entitle them to coronavirus sick leave if he or she were an employee), multiplied by the lesser of (1) $511 per day for people who are sick or quarantined, or $200 per day for people caring for another person; or (2) 100% of a sick or quarantined person’s average daily self-employment income for the year, or 67% of the average daily self-employment income for a person caring for another person.
A self-employment tax credit is also available for a person’s “qualified family leave equivalent amount.” That amount is equal to the number of days, up to 50 days, during the year that the person can’t work (for a reason that would entitle them to coronavirus-related family leave if he or she were an employee), multiplied by the lesser of (1) $200, or (2) 67% of the person’s average daily self-employment income for the year.
Further guidance is expected on what documentation will be required for self-employed taxpayers to claim this credit.
April 15 Tax Payment Deadline Extended to July 15
Separate from the Act, the Treasury Department and IRS extended the due date for federal income tax payments to July 15, 2020 (previously April 15, 2020). This applies to payments of up to $10 million for C corporations and consolidated groups, and up to $1 million for individuals, regardless of filing status. Taxpayers still need to file their tax returns by April 15, but the deadline to pay any taxes owed is extended 90 days. As always, if a taxpayer needs more time to file their return, they can file a form with the IRS to request an automatic six-month extension.
If you have any questions about this alert or regarding COVID-19 tax relief, please contact the Tax members of our COVID-19 Response Team indentified below.
If you have any questions about this alert or whether your business is subject to paid leave benefits provided under the Act, please contact the Labor, Employment and Benefits members of our COVID-19 Response Team indentified below.
Contact information for the complete McGrath North’s COVID-19 Response Team can be found here.
For information regarding additional business-related concerns centered around COVID-19, please visit our COVID-19 Resource Guide here.