The Paid Medical and Family Leave Credit
The Families First Corona Response Act (FFCRA) requires eligible employers to provide employees paid medical and family leave under the two provisions described below. The FFCRA provides eligible employers refundable tax credits that reimburse them for the cost of providing paid sick and family leave wages to their employees for leave related to COVID-19. Eligible self-employed individuals are also allowed an income tax credit to offset their federal self-employment tax.
Emergency Paid Sick Leave Act (EPSLA)
Eligible employers are required to provide employees with paid sick leave for a maximum of two weeks (up to 80 hours) if the employee is unable to work (including telework) due to any of the following reasons:
- The employee is under a Federal, State, or local quarantine or isolation order related to COVID-19;
- The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
- The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
- The employee is caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19, or has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
- The employee is caring for the child of such employee if the school or place of care of the child has been closed, or the child care provider of such child is unavailable, due to COVID–19 precautions;
- The employee is experiencing any other substantially similar condition specified by the U.S. Department of Health and Human Services.
An employee who is unable to work due to reasons described in (1), (2) or (3) above is to be paid sick leave at his/her regular rate of pay, or, if higher, the federal, state or local minimum wage, up to a maximum of $511 per day/$5,110 in the aggregate.
An employee who is unable to work due to circumstances described in (4), (5) or (6) above is entitled to paid sick leave at 2/3 the employee’s regular rate of pay or, if higher, the federal, state or local minimum wage, up to $200 per day/$2,000 in the aggregate.
Emergency Family and Medical Leave Expansion Act (Expanded FMLA)
The Expanded FMLA provides for paid family and medical leave only to an employee who cannot work because of a need to care for a child whose school, care facility or child care provider is unavailable due to COVID-19. The employee would be entitled to received pay equal 2/3 the employee’s regular rate of pay or, if higher, the federal, state or local minimum wage, up to $200 per day/$2,000 in the aggregate. Up to ten weeks can be counted towards the family leave credit. The employee could take two weeks under EPSLA and ten weeks under the Expanded FMLA for a total of twelve weeks of paid family and medical leave.
Who is an Eligible Employer?
Businesses and exempt organizations that have fewer than 500 employees and are required under the FFCRA to pay sick leave wages and family and medical leave wages. In making this determination all full-time and part-time employees within the United States, its territories and possessions are counted. Employees on leave, temporary employees and day laborers are considered employees. Independent contractors are not counted.
Self-employed individuals also qualify if the individual were an employee of an eligible employer that is subject to the FFCRA requirements.
What is the Amount of the Credit?
Eligible Employers that pay qualified leave wages will be able to retain an amount of all federal employment taxes equal to the amount of the qualified leave wages paid, plus the allocable qualified health plan expenses and the amount of the employer’s share of Medicare tax imposed on those wages, rather than depositing them with the IRS. The federal employment taxes that are available for retention by eligible employers include federal income taxes withheld from employees, the employees’ share of social security and Medicare taxes, and the employer’s share of social security and Medicare taxes with respect to all employees for paid leave during the period beginning on April 1, 2020 and ending on December 31, 2020.
If the federal employment taxes yet to be deposited are not sufficient to cover the eligible employer’s cost of qualified leave wages, plus the allocable qualified health plan expenses and the amount of the employer’s share of Medicare tax imposed on those wages, the employer will be able file a Form 7200 to request an advance payment from the IRS. This form is faxed to the IRS at 855-248-0552.
How is the Credit Claimed?
Eligible employers will report their total qualified leave wages and the related credits for each quarter on their federal employment tax returns (Form 941). In anticipation of receiving the credits, eligible employers can fund qualified leave wages (and allocable qualified health plan expenses and the eligible employer’s share of Medicare tax on the qualified leave wages) by accessing federal employment taxes, including withheld taxes, that are required to be deposited with the IRS.
If the reduction in tax deposits does not equal the qualified leave wages (and allocable qualified health plan expenses and the Eligible Employer’s share of Medicare tax on the qualified leave wages), the eligible employer would file a Form 7200 to claim an advance credit for the remaining qualified leave wages (and any allocable qualified health plan expenses and the Eligible Employer’s share of Medicare tax on the qualified leave wages) it has paid for the quarter for which it did not have sufficient federal employment tax deposits.
In order to claim the credit, the employer must retain records and documentation related to and supporting each employee’s leave to substantiate the claim. For example, detailed written documentation regarding quarantine orders from government authorities or medical personnel, school closings, and explanations as to why the employee is unable to work/telework must be maintained. In addition, the quarterly Employment Tax Return (Form 941) and Form 7200 must be maintained as well as any other filings made to the IRS to request the credit must also be retained.
The family leave credit involves not only the IRS, but also the Department of Labor. There are many issues and questions which are too lengthy to address. If you have additional questions please refer to https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs#basic and https://www.dol.gov/agencies/whd/pandemic/ffcra-questions