Tax-Related Provisions in the Families First Coronavirus Response Act
The Families First Coronavirus Response Act creates emergency paid sick leave, as well as paid family leave in the case of school closures, for working families impacted by COVID-19. It does so by requiring employers with up to 500 employees to provide paid sick leave and paid family leave, while providing a refundable payroll tax credit to employers to cover 100 percent of the cost of wages. There is also a refundable income tax credit for self-employed individuals.
Employers must offer two weeks (10 days) of paid sick leave for COVID-19-related reasons (existing leave offered can count towards the 10 days). If the sick leave is:
- for an employee who is themselves sick or seeking a diagnosis, the benefit must replace all of the employee’s wages up to a maximum benefit of $511 per day.
- if an employee is caring for another individual who is sick, the benefit must replace at least two-thirds of the employee’s wages up to a maximum benefit of $200 per day.
The government paid sick leave credit offsets 100% of employer costs for providing mandated paid sick leave. The credit also offsets, uncapped, the employer contribution for health insurance premiums for the employee for the period of leave.
Employers must offer 12 weeks of paid family leave for an employee with a minor child in the event of the closure of the child’s school or place of care. The first 10 days are unpaid, but the employee can overlap this with the 10 days of paid sick leave. This benefit must replace at least two-thirds of the employee’s wages up to a maximum of $200 per day. Our paid family leave credit offsets 100% of employer costs for providing mandated paid family leave. The credit also offsets, uncapped, the employer contribution for health insurance premiums for the employee for the period of leave.
Both credits get money out the door quickly. This credit is against payroll tax and is refundable, so employers receive funds as they make deposits. Employers do not pay the employer side of payroll taxes on the mandated leave. The Social Security OASDI trust funds and the Railroad Retirement Account are held harmless by transferring funds from the General Fund.
Self-employed individuals are provided similar credits as refundable income tax credits. If territorial governments provide corresponding credits, Treasury shall make payments to territorial governments to cover their estimated costs.
Common Questions about the FMLA Updates for COVID-19
Self-employed individuals who receive a credit may use that credit against estimated income tax payments. Estimated tax payments are due throughout the year. Self-employed individuals can also receive a refund after the end of their tax year.