Departments Announce Preliminary Information For Implementation of New Paid Leave Laws and Tax Credits Relating to COVID-19

On Friday, March 20, 2020, the Treasury Department (“Treasury”), Internal Revenue Service (“IRS”) and the Department of Labor (“Labor”) issued a news release that offered very preliminary information about the implementation plan for the paid leave and related payroll tax credit provisions contained in the Families First Coronavirus Response Act (the “Act”), which was enacted on March 18, 2020, to help combat and defeat the novel coronavirus (“COVID-19”) outbreak.

Background

The Act includes two components known as the Emergency Paid Sick Leave Act (“EPSLA”) and the Emergency Family and Medical Leave Expansion Act (“EFMLA”), which impose mandates on certain employers to provide paid leave to employees in certain circumstances stemming from COVID-19. Detailed information about the provisions of EPSLA and EFMLA can be found here. Also included in the Act is a provision allowing small and midsized employers – employers with fewer than 500 employees (“Eligible Employers”) – to take advantage of new refundable payroll tax credits for the paid leave mandated by EPSLA and EFMLA, which will immediately and fully reimburse these Eligible Employers, dollar-for-dollar, for the cost of providing the paid leave. The payroll tax credits available to Eligible Employers depend on whether the paid leave is provided under EPSLA or EFMLA as well as the reason for the leave, as summarized below.

Credit

Reason

Maximum Per Day

Maximum

Aggregate

EPSLA Paid Sick Leave Credit

For an employee who is unable to work because of:

(1) COVID-19 government-ordered quarantine or isolation;

(2) The advice of a health care provider to self-quarantine due to concerns related to COVID-19; or

(3) COVID-19 symptoms the employee is seeking a medical diagnosis.

Up To

$511

$5,110

(10 Days)

EPSLA Paid Sick Leave Credit

For an employee who:

(1) Is caring for someone under a COVID‑19 government-ordered quarantine or isolation or whose health care provider advised self-quarantine due to concerns related to COVID-19;

(2) Is caring for a child because the child’s school or child care facility is closed; or

(3) The child care provider is unavailable due to COVID-19.

Up To

$200

$2,000

(10 Days)

EFMLA Child Care Leave Credit

For an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to COVID-19.

Up To

$200

$10,000

(10 Weeks)

How To Claim The Payroll Tax Credits

The joint news release provides initial confirmation that Eligible Employers can take immediate advantage of these payroll tax credits through the payroll process by retaining funds, equivalent to the payroll tax credits, that they would otherwise pay to the IRS in payroll taxes. While details are sparse at this time, there are several practical takeaways from the joint news release:

Eligible Employers will receive 100 percent reimbursement for leave paid pursuant to EPSLA and EFMLA with no payroll tax liability. In addition, Eligible Employers are allowed to claim as additional credits the employer’s cost of health insurance relating to the paid leave.
Eligible Employers face no payroll tax liability. Under the Act, paid leave mandated by EPSLA and EFMLA are excluded from treatment as wages for purposes of the Eligible Employer’s share of the Social Security tax, and the Eligible Employer’s share of the Medicare tax can be claimed as an additional credit.
Self-employed individuals will receive an equivalent credit. Self-employed individuals will claim these credits on their income tax return and will be allowed to reduce their quarterly estimated tax payments.
Reimbursement will be quick and easy to obtain. Eligible Employers will be allowed an immediate dollar-for-dollar tax offset against payroll taxes, including withheld federal income taxes, the employee share of Social Security taxes and the employee share of Medicare taxes. If the IRS owes a refund, they have committed to sending the refund as quickly as possible. Eligible Employers will be able to file a request for an accelerated payment from the IRS via a new claim form currently being developed by the IRS. The IRS expects to process these requests in two weeks or less.
Additional Guidance Expected. The Treasury, IRS and Labor indicated that additional guidance will be released this week (the week of March 23, 2020). During the financial crisis of 2008/09, a similar payroll credit process was implemented for COBRA premium subsidies, so one could expect to see guidance that is similar.
DOL likely may issue emergency guidance exempting Eligible Employers with fewer than 50 employees from some (but not all) leave requirements under EFMLA. This exemption would only be available in cases where the viability of the business is threatened, and reportedly will be based on simple and clear criteria.
DOL said it will issue a temporary non-enforcement policy that provides a period of time for Eligible Employers to come into compliance with the Act. Under this policy, DOL would not bring an enforcement action against any Eligible Employer for violations of the Act so long as the Eligible Employer has acted reasonably and in good faith to comply with the Act.

Hall Render will continue to monitor and provide you with information as it becomes available. Please refer to Hall Render’s COVID-19 Resource Center and hotline at (317) 429-3900 for any questions, as well as up-to-date information regarding the virus. If you have any questions on the issues discussed in or related to this post, please contact: