Here is my basic research concerning the new payroll tax issues and how the mandatory payment for employees affected by COVID will play out. I'm sure none of this is new to any of you, but just in case you wanted one a little more understandable.
The House of Representatives recently passed the Families First Coronavirus Response Act on March 14, 2020. I’ve arranged this letter with the summary first with details following the main points. The bill has been passed, but is currently in a state of fluidity with slight changes occurring regularly.
What is the Families First Coronavirus Response Act?
The Families First Coronavirus Response Act includes several provisions related to management of the coronavirus pandemic. The legislation mandates that private employers with less than 500 employees and all public employers provide expanded qualified family and medical leave and paid sick leave for a broad range of coronavirus related absences.
Additional wages paid by employers as a result of these provisions offset the employer’s share of FICA taxes (Social Security and Medicare Tax). Any excess over the amount of taxes due will be paid back to the employers under terms that have not yet been established. Wages paid as a result of these provisions are excluded from the calculation of the employer’s share of FICA taxes. In other words, FICA taxes will be withheld from the employee, but there will be no FICA requirement for the employer’s portion of Social Security and Medicare.
- 1. Paid Sick Leave for Workers- Employees receive up to 80 hours of paid sick leave and expanded paid childcare leave when employees’ children’s schools are closed or child care providers are unavailable at 2/3 the employee’s salary.
- 2. Complete coverage- Employers receive 100% reimbursement for paid leave pursuant to the Act
- a. Employee Payroll not to exceed $511 or $200 per day depending on circumstances
- b. Health Insurance Costs paid by the employer
- c. Self-Employed individuals receive an equivalent credit
- 3. Small Business Protection- Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave in cases where the viability of the business is threatened. This exemption only applies to care for a child whose school was closed or child care is unavailable.
- 4. Easing Compliance- To take advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not enough to cover the cost of paid leave, the employer can seek an expedited advance from the IRS by submitting a claim form.
If an eligible employer paid $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 be required under the law to deposit the remaining $3,000 on its next regular deposit date.
If an eligible employer paid $10,000 in sick leave and was 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 file a request for an accelerated credit for the remaining $2,000.
How does this apply to my organization?
Private employers with fewer than 500 employees are required to provide the following:
- 1. Two weeks of paid sick leave, at the employee’s regular rate, limited to $511 per day and $5,110 in total to each employee that is unable to work or telework because they are:
- a. Subject to a federal, state or local quarantine or isolation order related to coronavirus,
- b. Advised by a health care provider to self-quarantine due to coronavirus concerns, or
- c. Experiencing symptoms of coronavirus and seeking a medical diagnosis.
- 2. Two weeks of paid sick leave, at two-thirds of the employee’s regular rate limited to $200 per day and $2,000 in total for employees who are unable to work or telework because they are:
- a. Caring for an individual who is subject to a federal, state or local quarantine or isolation order or has been advised by a health care provider to self-quarantine due to coronavirus concerns,
- b. Caring for a son or daughter whose school or place of childcare of the child is closed or whose childcare provider is unavailable due to coronavirus precautions, or
- c. Experiencing a substantially similar condition that is specified by the Secretary of Health and Human Services (in consultation with the Secretaries of Treasury and Labor).
The paid sick leave is used instead of paid sick leave the employer would already provide.
A tax credit against the employer’s portion of FICA taxes equal to the amount of sick leave wages is provided, limited to 10 days per affected employee (at $511 per day or $200 per day if caring for someone else or experiencing a substantially similar condition). Any excess over the amount of those taxes due is refundable under terms to be established by the Secretary of the Treasury.
In addition, the credit amount, under the act, would be increased by an allocable portion of an employer’s “qualified health plan expenses.” Generally, these expenses include amounts paid for a group health plan that are excludable from employees’ income. A credit would be authorized for the employer’s portion of health insurance expense reduced by the amount contributed by the employee.
The paid sick leave requirement and related credit is effective no later than 15 days after the President signs the legislation and expires at the end of 2020.