Signed into law on March 18, 2020, the Families First Coronavirus Response Act (FFCRA) includes requirements for employers with fewer than 500 employees to provide emergency paid sick time and medical leave related to COVID-19. The law also provides a payroll tax credit to employers to cover 100% of the costs associated with FFCRA emergency paid sick and medical leave provided to their employees April 1 through December 31.
- The limit on sick pay is $511 per day when the employee is ill or quarantined, and $200 per day when the employee is caring for an infected or quarantined individual or a child whose school or caregiver is not available due to COVID-19.
- The limit on medical leave pay when the employee is caring for a child whose school or caregiver is not available due to COVID-19 is $200 per day.
In addition to sick and medical leave wages paid under FFCRA, the tax credit also includes qualified health plan expenses allocated to the leave wages and the employer’s share of Medicare taxes on the qualified leave wages. Employer Social Security taxes are not withheld on wages paid under the emergency sick time and medical leave requirements and therefore do not qualify for the credit.
If the amount of the credit exceeds employer payroll tax liability, the IRS will issue a refund. Employers will be able to request advance payment of refund amounts via IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.
- The tax credit cannot be applied to sick or leave pay provided prior to April 1, 2020.
- Emergency sick and medical leave pay are fully taxable for state and local jurisdictions.
- The employee portion of Social Security and Medicare taxes must be withheld, reported, and deposited per normal practices.
- State and municipal stay-at-home orders do not qualify as sick or medical leave under FFCRA. However, employees under a stay-at-home order who cannot work from home may qualify for unemployment benefits.
In addition to the dollar-for-dollar tax credit in the FFCRA, the newly signed CARES Act allows employers to defer their 2020 Social Security taxes, with half due by the end of 2021 and half due by the end of 2022.
- Families First Coronavirus Response Act DIVISION G—TAX CREDITS FOR PAID SICK AND PAID FAMILY AND MEDICAL LEAVE
- IRS COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs
- IRS Coronavirus Resources
- U.S. Small Business Administration Coronavirus Resources
- Inova Payroll’s COVID-19 resources for employers
Updated April 9, 2020, to replace draft IRS Form 7200 with published IRS Form 7200.