Tax credits under new coronavirus (COVID-19) law

published in McAfee & Taft LINC Alert | March 20, 2020

Tax credits available to employers for paid sick leave and family and medical leave

On March 18, 2020, the President signed into law the Families First Coronavirus Act. The Act includes the Emergency Paid Sick Leave Act (EPSLA), which mandates public employers of any size and private employers with less than 500 employees to provide 80 hours of paid sick leave to full-time employees who are unable to work for specific reasons related to the coronavirus. The Act also includes the Emergency Family and Medical Leave Expansion Act (EFMLEA), which requires employers with fewer than 500 employees to provide both paid and unpaid public health emergency leave to certain employees affected by the coronavirus through December 31, 2020. In turn, the Act provides tax credits to employers to help offset the cost of wages paid to employees while they are taking time off under the EPLSA and EFMLEA.

What type of tax credits are available to employers?

The tax credits under the Act are payroll tax credits. The credits are generally available to employers that withhold and pay payroll taxes on behalf of employees and who are required to provide paid and unpaid leave under the Act.

How much of a credit is available?

  • The EPLSA credit for each employee is equal to 100% of the employee’s qualified paid sick leave wages, limited to $511 per day (or $5,110 in total) while the employee is receiving paid sick leave to care for themselves, or $200 per day (or $2,000 in total) if the paid sick leave is extended to the employee to care for a family member or child whose school is closed.
  • For employers paying family leave wages under the EFMLEA, a separate payroll tax provision allows a 100% credit against the employer’s share of payroll tax for each employee, limited to $200 per day up to a total of $10,000 per employee.
  • The credits are refundable to the extent they exceed the amount the employer owes in payroll tax.  Employers do not receive the credits if they are also receiving the payroll tax credit for paid family and medical leave under Section 45S of the Internal Revenue Code.

How long are the tax credits available?

The credits apply to wages paid from March 18, 2020, to December 31, 2020.