The Families First Coronavirus Response Act we talked about yesterday provides tax credits to employers to cover wages paid to employees taking time off under the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical Leave Expansion Act (EFMLEA). This will address the law as it applies to private employers – as the law exists at this moment in time. As is true with this public health emergency, we must expect changes.

The headline in the news is that employers will be able to get tax credits for the paid leaves being provided under EPSLA and EFMLEA. Yet, the mechanics of these tax credits are quite complicated. The tax credits are refundable to the extent they exceed the employer’s payroll tax. Based upon the law as it stands now, refunds would typically be processed with the employer’s 2020 income tax return. But note that employers don’t receive the credit if they’re also receiving credit for paid family and medical leave as described in Internal Revenue Code Sec. 45S.

The credits under the Families First Coronavirus Response Act have three components (this part of the article gets technical so you may want to contact your accountant):

1. a. The EPSLA credit for each employee is equal to the lesser of the amount of his leave pay or either (1) $511 per day while the employee is receiving paid sick leave to care for themselves, or (2) $200 if the sick leave is to care for a family member or child whose school is closed. An additional limit applies to the number of days per employee: the excess of 10 days over the aggregate number of days taken into account for all preceding calendar quarters.
   
   To prevent double benefits, the employers’ gross income will be increased by the amount of the credit (meaning the credit is not taken into account for purposes of determining any amount allowable as a payroll tax deduction, deduction for qualified sick leave wages, or deduction for health plan expenses), and no credit will be allowed for wages for which a Sec. 45S family and medical leave credit is claimed. Employers could elect not to apply the new provision for any calendar quarter.
   
   b. The EFMLEA credit for each employee is the amount of his leave pay limited to $200 per day with a maximum of $10,000.
2. The amount of the EPSLA and EFMLEA credits are increased by the portion of the employer’s “qualified health plan expenses” that are properly allocable to qualified sick leave wages or qualified family and medical leave wages. Qualified health plan expenses means amounts paid or incurred by the employer to provide and maintain a group health plan, but only to the extent that such amounts are excluded from the gross income of employees by reason of Code Sec. 106(a).
3. In addition, the credits allowed to employers for wages paid under the EPSLA and EFMLEA are increased by the 1.45% hospital insurance portion of FICA on qualified sick leave wages, or qualified family leave wages, for which credit is allowed under Act Sec. 7001 or Act Sec. 7003.
   
   The EPSLA and EFMLEA credits may also be taken against the employer’s railroad retirement tax. (Act Sec. 7001(a); Act Sec. 7003(a))

Comparable credits for self-employed individuals. Eligible self-employed individuals would be eligible for a refundable credit against income tax for qualified family leave equivalent amounts. This article will not address the details of that credit.

Employer FICA exclusion. Wages paid under the EPSLA and EFMLEA are not considered wages under Code Sec. 3111(a) (employer tax – old age, survivors and disability insurance portion of FICA; 6.2%) or under Code Sec. 3221(a) (employer’s railroad retirement tax).

If you have questions about your individual tax circumstances, you should consult qualified tax counsel.

By Jeffrey D. Trevillion, Jr., jtrevillion@dsda.com

Acknowledgement of Sources:
Thomson Reuters/Tax & Accounting. Coronavirus information relevant to tax professionals – a summary (03/20/2020).