On March 18, 2020, the Families First Coronavirus Response Act (FFCRA) was signed into law requiring employers with fewer than 500 employees to make payments for COVID-19 related FLMA leave and paid sick leave required by the Act. To lessen this financial burden to employers, the act provides for refundable tax credits to offset payroll taxes. The FFCRA tax credits will be provided for eligible wages paid from April 1, 2020, to December 31, 2020.
Paid sick leave tax credit
For the paid sick leave portion of the FFCRA, employers are eligible for a payroll tax credit that equals 100% of the qualified sick leave wages required to be paid by the employer under the Act. Credits are calculated per individual and have two different caps based on the reason for the paid sick leave:
- If the employee is quarantined, self-quarantined or has COVID-19, credits are capped at $511/day for up to 10 days per calendar quarter.
- If the employee taking leave for any other purpose under the act, credits are capped at $200/day for up to 10 days per calendar quarter.
The credit can be further increased by certain qualified health plan expenses of the employer that are allocable to qualified sick leave wages for which the credit is allowed.
Emergency FMLA expansion tax credit
For the Family and Medical Leave Act (FMLA) portion of the FFCRA, employers are eligible for a payroll tax credit that equals 100% of the qualified family leave wages required to be paid by the employer under the act. Credits are calculated per individual and are capped at $200/day for up to 10 weeks, with a maximum of $10,000 per employee. If an employee is taking FMLA leave to take care of a child, an employer many only claim credits representing 2/3 of the employee’s regular pay.
Generally, the wages employers pay for qualified family and sick leave under the FFCRA reduce the employer portion of Social Security payroll taxes, dollar for dollar. If there are credits leftover after the employer portion of Social Security payroll taxes is reduced to $0, the employer is due a refund. Please see the Q&As below for more information on claiming FFCRA credits and refunds.
Eligible self-employed individuals may receive a refundable credit against estimated taxes for qualified sick leave or FMLA leave amounts. An eligible self-employed individual is an individual who regularly carries on any trade or business and would be entitled to receive paid sick leave or FMLA leave under the Act if the individual were an employee.
Frequently asked questions
Q: May large employers (500+ employees) voluntarily comply with the FFCRA to claim tax credits?
A: No, these tax credits do not extend to large employers who voluntarily comply with the FFCRA. However, large employers may qualify for tax credits under Code section 45S, which provide tax credits to employers that provide paid family and medical leave.
Q: If an employer pays an employee on FMLA leave for child care purposes 100% of their normal wages instead of the 2/3 required by the Act, may they claim tax credits for the full 100% paid?
A: No, the employer may only claim the amount that is required to be paid under the Act. Only 2/3 of an employee’s regular compensation is required to be paid by the Act, so only 2/3 of regular compensation will be eligible for tax credits, even if the employer does not reduce pay.
Q: May an employer claim both FFCRA tax credits and the Employee Retention Tax Credit?
A: No. The IRS will not allow double-dipping. An employer may not claim both FFCRA tax credits and Employee Retention Tax Credits for the same dollar of wages. Read more on the ERTC here.
Q: How do employers claim FFCRA credits?
A: To get credits, employers must retain the overall payroll taxes (i.e., the employer and employee portions of FICA and income taxes) in an amount equal to the accrued credits. In certain circumstances, employers may request advance credit refunds from the IRS. For more information, click here.
Additional guidance about paid sick and FMLA leave required by the FFCRA may be found here and here.
Information about COVID-19 and its impact on local, state and federal levels is changing rapidly. This article may not reflect updates to news, executive orders, legislation and regulations made after its publication date. Visit our COVID-19 resource page to find the most current information.