On March 18, 2020, the Families First Coronavirus Response Act (“FFCRA”) was passed. The FFCRA has two important new laws intended to provide relief for employees in the form of paid leave or paid extended leave and for employers in the form of tax credits and exemptions. The two laws are the Emergency Family and Medical Leave Expansion Act (“EFMLEA”) and the Emergency Paid Sick Leave Act (“EPSLA”). This blog is the fourth in a series of blogs to explain the impact of FFCRA on small businesses and will explain how businesses will be reimbursed for costs associated with complying with the new legislation. Please read our first blog on the EFMLEA here, the second blog on the EPSLA here, and our third blog on employee communication regarding both the EFMLEA and EPSLA here.
While many employers are thankful for options to support their employees, they are understandably concerned with how the business pay for it. The answer is tax credits. Eligible employers qualify for dollar-for-dollar reimbursement through tax credits for all qualifying wages paid under the FFRCA.
Qualifying wages are those paid to an employee who take leave under the Act for qualifying reason, up to the appropriate per diem and aggregate payment caps. Applicable tax credits also extend to amounts paid or incurred to maintain health insurance coverage. ,
Fortunately, small businesses do not have to wait until they file taxes to receive the tax.
Retention of Payroll Taxes
Business who have employees on leave will be able to retain an amount of the payroll taxes that they owe equal to the amount of qualifying leave that they paid, rather than deposit them with the IRS. This includes withheld federal income taxes, and the employee and the employer share of Social security and Medicare taxes, with respect to all employees. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form. The IRS expects to process these requests in two weeks or less.
Payroll Example 1:
If a company pays $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.
Payroll Example 2:
If company paid $10K in sick leave and would otherwise be required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and could file a request for an accelerated credit for the remaining $2,000.
If you intend to claim a tax credit under the FFCRA for your payment of the sick leave or expanded family and medical leave wages, you should retain appropriate documentation in your records. For example, set up a new code for the various types of leave employees could take, use timesheets and record and track payroll.
We Are Here to Help
The Browne Firm is dedicated to helping our clients navigate these rapidly changing laws as seamlessly as possible. We have created a resource page to help clients in need. Do not hesitate to reach out to our office at (914) 530-3070 if you need guidance regarding how to comply with federal and local restrictions while moving your business through these difficult times. You are not alone. We are all in this together.