Eligible employers are allowed tax credits to cover certain costs of providing employees with paid sick leave and family and medical leave for reasons related to COVID-19.
Recent legislation extended and amended tax relief to certain small- and mid-sized employers that was provided for under the Families First Coronavirus Response Act (FFCRA).
The IRS recently updated its FAQs to cover how the COVID-related Tax Relief Act of 2020, enacted Dec. 27, 2020, extends the availability of the tax credits created by the FFCRA to eligible employers for paid sick and family leave provided through March 31, 2021, as well as other amendments to the credits.
The paid sick and family leave credits, which previously were available only until the end of 2020, have been extended for periods of leave taken through March 31, 2021.
The paid sick leave credit is designed to allow qualified businesses – those with fewer than 500 employees and who pay “qualified sick leave wages” – to receive a credit for wages or compensation paid to an employee who is unable to work (including telework) because of coronavirus quarantine or self-quarantine, or has coronavirus symptoms and is seeking a medical diagnosis. Eligible employers may claim a credit for paid sick leave provided to an employee for up to two weeks (up to 80 hours) at the employee’s regular rate of pay, or up to $511 per day and $5,110 total.
In addition, an eligible employer can receive the paid sick leave credit for employees who are unable to work due to caring for someone with coronavirus or caring for a child because the child’s school or place of care is closed, or the paid child care provider is unavailable due to the coronavirus. Eligible employers may claim the credit for paid sick leave provided to an employee for up to two weeks (up to 80 hours) at 2/3 the employee’s regular rate of pay, or up to $200 per day and $2,000 total.
Employers are also entitled to a paid family leave credit for paid family leave provided to an employee equal to 2/3 of the employee’s regular pay, up to $200 per day and $10,000 total. Up to 10 weeks of qualifying leave can be counted toward the family leave credit.
Eligible employers are entitled to immediately receive a credit in the full amount of the paid sick leave and family leave plus related health plan expenses and the employer’s share of Medicare tax on the leave provided through March 31, 2021. The refundable credit is applied against certain employment taxes on wages paid to all employees.
Eligible employers may claim the credits on their federal employment tax returns (e.g., Form 941, Employer’s Quarterly Federal Tax Return), however, they can benefit more quickly from the credits by reducing their federal employment tax deposits. If there are insufficient federal employment taxes to cover the amount of the credits, an eligible employer may request an advance payment of the credits from the IRS by submitting a Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Similar credits are available to self-employed individuals. Guidance is also available for businesses with fewer than 50 employees where compliance would jeopardize the viability of the business as a going concern.