Tax Credits and Tax Exemption to Lessen Burden of COVID-19 Business Mandate

On March 18, 2020 President Trump signed into law the Families First Coronavirus Response Act (FFCRA), which eased the compliance burden on businesses.  The FFCRA include the four tax credits and one tax exemption discussed below.

1. Payroll Tax Credit for Required Paid Sick Leave (the payroll sick leave credit)
   1. The Emergency Paid Sick Leave Act (EPSLA) division of the FFCRA generally requires private employers with fewer than 500 employees to provide 80 hours of paid sick time to employees who are unable to work for virus-related reasons (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy).  The pay is up to $511 per day with a $5,110 overall limit for an employee directly affected by the virus and up to $200 per day with a $2,000 overall limit for an employee that is a caregiver.
   2. The tax credit corresponding with the EPSLA mandate is a credit against the employer’s 6.2% portion of Social Security (OASDI) payroll tax (or against the Railroad Retirement tax).  The credit amount generally tracks the $511/$5,110 and $200/$2,000 per employee limits described above.  The credit can be increased by the following:
      1. The amount of certain expenses in connection with a qualified health plan if the expenses are excludible from employee income, and
      2. The employer’s share of the payroll Medicare hospital tax imposed on any payments required under the EPSLA.
   3. The credit amounts earned in excess of the employer’s 6.2% Social Security (OASDI) tax (or in excess of the Railroad Retirement tax) are refundable.  The credit is electable and includes provisions that prevent double tax benefits (for example, using the same wages to get the benefit of the credit and of the current law employer credit for paid family and medical leave).  The credit applied to wages paid in a period beginning on April 1, 2020 and ending on December 31, 2020.
2. Income Tax Sick Leave Credit for the Self-Employed (self-employed sick leave credit)
   1. The FFCRA provides a refundable income tax credit (including against the taxes on self-employment income and net investment income) for sick leave to a self-employed person by treating the self-employed person both as an employer and an employee for credit purposes.  Thus, with some limits, the self-employed person is eligible for a sick leave credit to the extent that an employer would earn the payroll sick leave credit if the self-employed person were an employee.
   2. Accordingly, the self-employed person can receive an income tax credit with a maximum value of $5,110 or $2,000 per the payroll sick leave credit.  However, those amounts are decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid sick leave from an employer under the FFCRA.  The credit applied to wages paid in a period beginning on April 1, 2020 and ending on December 31, 2020.
3. Payroll Tax Credit for Required Paid Family Leave (the payroll family leave credit)
   1. The Emergency Family and Medical Leave Expansion Act (EFMLEA) division of the FFCRA requires employers with fewer than 500 employees to provide both paid and unpaid leave (with an administrative exemption for less-that-50-employee businesses that the leave mandate puts in jeopardy).  The leave generally is available when an employee must take off to care for the employee’s child under age 18 because of a COVID-19 emergency declared by a federal, state, or local authority that either:
      1. Closes a school or childcare place, or
      2. Makes a childcare provider unavailable.
   2. Generally the first 10 days of leave can be unpaid and then paid leave is required, pegged to the employee’s pay rate and pay hours.  However, the paid leave can’t exceed $200 per day and $10,00 in the aggregate per employee.
   3. The tax credit corresponding with the EFMLEA mandate is a credit against the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against Railroad Retirement tax).  The credit generally tracks the $200/$10,000 per employee limits described above.  The other important rules for the credit, including its effective period, are the same as those described above for the payroll sick leave credit.
4. Income Tax Family Leave Credit for Self-Employed (self-employed family leave credit)
   1. The FFCRA provides to the self-employed a refundable income tax credit (including against the taxes on self-employment income and net investment income) for family leave similar to the self-employed sick leave credit discussed above.  Thus, a self-employed person is treated as both an employer and an employee for purposes of the credit and is eligible for the credit to the extent that an employer would earn the payroll family leave credit if the self-employed person were an employee.
   2. Accordingly, the self-employed person can receive an income tax credit with a maximum value of $10,000 as per the payroll family leave credit.  However, under rules similar to those for the self-employed sick leave credit, that amount is decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid family leave from an employer under the FFCRA.  The credit applies to the period beginning April 1, 2020 and ending December 31, 2020.
5. Exemption for Employer’s Portion of any Social Security (OASDI) Payroll Tax or Railroad Retirement Tax Arising from Required Payments – Wages paid as required sick leave payments because of EPSLA or as required family leave payments under EFMLEA aren’t considered wages for purposes of the employer’s 6.2% portion of the Social Security (OASDI) payroll tax or for purposes of the Railroad Retirement tax.