Update – As of today, March 20, 2020, IRS has moved the federal income tax filing deadline to July 15, 2020. Therefore, taxpayers have an extension of time to file and pay. Stay tuned for more information on this topic.
On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (H.R. 6201) (the “Act”). The Act provides payroll tax credits to certain employers that provide emergency paid sick leave or family leave to their employees who miss work for various coronavirus-related reasons. A credit is also available for self-employed individuals.
Note, the credits are only available to employers with fewer than 500 employees that are required to pay wages or other compensation to their employees under the Act. Thus, larger companies with 500 or more workers are automatically exempt from this requirement. Additionally, smaller companies with fewer than 50 workers may request an exemption; such procedures are pending further guidance from the Secretary of Labor.
These provisions will go into effect sometime before April 2, 2020 and will expire on December 31, 2020. The precise beginning date is yet to be determined by the Treasury.
The sick leave credit for each employee is equal to 100% of wages, with limitations. The primary limitation is $511 per day while the employee is receiving paid sick leave because they are quarantined (or self-quarantined). The credit is further limited to $200 per day if the sick leave is to care for a family member who is quarantined (or self-quarantined) or a child whose school is closed. This credit is available for up to 10 days per employee per calendar quarter.
The family leave credit for each employee is equal to 100% of wages, with one limitation. The limitation is $200 per day while the employee is unable to work due to a need to care for a child whose school or daycare is closed or the childcare provider is unavailable. This credit is available for up to 50 days per employee (i.e., maximum of $10,000 in wages per employee).
The credits are applied against the employer’s payroll (i.e., “FICA”) taxes, which include the 6.2% OASDI tax and the 1.45% Medicare tax. The credits may also be increased by certain qualified health plan expenses that are allocable to qualified sick leave wages for which the credit is allowed.
The credits are refundable to the extent they exceed the employer’s payroll tax. Neither credit is available to employers that are also receiving the credit for paid family and medical leave under Code Sec. 45S.
The Act also provides for similar refundable credits against the self-employment income tax. An eligible self-employed individual is one who “regularly carries on any trade or business” and would be entitled to receive paid sick or family leave if the individual were an employee.
Like the employer payroll tax credit, the sick leave credit for self-employed individuals to care for themselves is 100% of their average daily self-employment income, limited to $511 per day. If the individual is caring for someone else, then the credit is equal to the lesser of $200 per day or 67% of their average daily self-employment income. The sick leave credit is available for up to 10 days per calendar quarter.
Additionally, self-employed individuals can receive a family leave credit for 100% of their average self-employment income, limited to $200 per day. The family leave credit is available for as many as 50 days.
Self-employed individuals will have to submit documentation, as required by the Treasury Department. Regulations or other guidance should be forthcoming to ensure compliance.
We will continue to stay abreast of any developments in this area and will send updated Tax Alerts as necessary. For any tax-related questions specific to this Tax Alert, please contact any of the following individuals: