COVID-19 | FFCRA Emergency Family Medical Leave Payroll Tax Credit
FFCRA stands for The Families First Coronavirus Response Act which was signed by President Trump on March 18, 2020. In brief, It provides small and mid sized employers refundable tax credits that reimburse them, dollar for dollar, for the cost of providing paid sick and family leave wages to their employees for leave related to COVID-19.
To businesses with fewer than 500 employees, FFCRA provides funds to employees with paid sick leaves and family and medical leave for reasons related to Covid-19. This is for employees’ own health needs or to take care of their family members.
As per FFCRA, workers may receive a paid sick of leave of 80 hours for their own health needs or to take care of others and additional 10 weeks of paid leave to take care of a child whose school or place of care is closed or child care provider is closed or it’s unavailable due to Covid-19 precautions. The FFCRA takes care of all these paid leaves by providing small businesses with refundable tax credits. Certain self-employed individuals with similar circumstances are entitled to similar credits.
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Overview of Paid Family Leave Refundable Credit:
The FFCRA requires small size and midsize businesses to provide paid leave through two separate provisions:
The Emergency Paid Sick Leave Act (EPSLA):
This act entitles workers upto 80 hours of paid sick leave when they are unable to work for certain reasons related to COVID-19.
The Emergency Family and Medical Leave Expansion Act (Expanded FMLA):
This act entitles workers to certain paid medical or family leave.
Paid Sick Leave refers to paid leave under the Emergency Paid Sick Leave Act. Expanded Family Medical Leave refers to paid leave under the Emergency Family and Medical Leave Expansion Act. The FFCRA’s paid leave provisions are effective from April 1, 2020, and apply to leave taken between April 1,2020 and December 1, 2020.
Here, we will talk about Expanded FMLA. The FFCRA provides that employers subject to the EPSLA and Expanded FMLA paid leave requirements are entitled to fully refundable tax credits to cover the cost of the leave required to be paid for these periods of time during which employers are unable to come to work including telework. Eligible employers are entitled to refundable tax credits for collectively qualified sick leave wages and Family leave wages under sections 7001 and 7003 of the FFCRA respectively. It can be because of the need to take care of a child whose school or place of care or child care center is closed due to Covid-19 precautions.
This is entitled to paid family and medical leave equal to two thirds of the employees regular pay, multiplied by the number of hours the employee otherwise would have scheduled to work, up to $200 per day and $10,000 in the aggregate for the calendar year. Also, upto 10 weeks leave can be counted towards the family leave credit.
The eligible employee is entitled to a fully refundable tax credit equal to the 100% of the required paid family and medical leave. The tax credit also includes the eligible employer’s share of Medicare tax imposed on those wages and cost of maintaining health insurance coverage for the employee during the family leave period. However, the eligible employer is not subject to the employer portion of social security tax imposed on those wages.
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What is included in “ Qualified Family Leave Wages”
As defined in section 3121 (a) of the Internal Revenue Code for social security and Medicare tax purposes, Qualified Family Leave Wages are wages that eligible employers must pay eligible employees for period of leave during which they are unable to work or telework due to need for leave to care for a child of such employee if the child’s school or place of care or child care center is closed due to Covid-19 precautions. The first 10 days for which an employee takes leave for these reasons may be unpaid. However, during that 10-day period, an employee must be entitled to receive qualified sick leave wages as provided under the ESPLA or may receive other forms of paid leave, such as annual leave, accrued leave, or other paid time off under the legible Employer’s policy. After an employee takes leave for ten days, the Eligible Employer must provide the employee with qualified family leave wages for up to ten weeks.
Other than qualified family leave wages included in the tax credit for required paid family leave, the credit also includes the amount of the Eligible Employer’s share of Medicare tax imposed on the qualified family leave wages and any qualified health plan expenses allocable to those wages. Under section 106 (a) of the Internal Revenue Code, Qualified health plan expenses are amounts paid or incurred by the Eligible Employer to provide and maintain a group health plan to the extent that the amounts are excluded from the employee’s gross income.
Kindly Note: The credit for the employer’s share of Medicare tax does not apply to Eligible Employers that are subject to Railroad Retirement Tax Act (RRTA) because qualified Family Leave Wages are not subject to Medicare Tax under RRTA.
Qualified reasons for leave:
Under FFCRA, an employee is eligible for paid sick leave if an employee is unable to work or tele work due to need for leave because of the following:
- The employee is subject to 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 related to COVID-19
- The employee is experiencing COVID-19 symptoms and is seeking a medical diagnosis
- The employee is caring for a child whose school or place of care is closed or child care provider is unavailable for reasons related to COVID-19
- The employee is experiencing any other substantially-similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.
How to claim sick leave as credit?
Eligible employers who pay sick leave or child care leave will be able to retain an amount of their federal payroll taxes equal to the amount of qualifying sick and/or child care leave that they paid, rather than deposit them with the IRS.
The payroll taxes that are available for retention include:
- Federal Income Tax Withheld
- ER and EE Portion of Social Security Tax
- ER and EE Portion of Medicare Tax
The U.S. department of labor will be implementing the above regulations. The department will also continue to provide compliance assistance to employers and employees on their responsibilities and rights under the FFCRA.