Late on March 18th, President Trump signed into law the Families First Coronavirus Response Act, providing a wide variety of relief provisions in response to the Coronavirus pandemic. Besides providing for free COVID-19 testing, the main components of the bill are to provide: paid leave benefits to employees, tax credits for employers and self-employed taxpayers; and FICA tax relief for employers. All these provisions expire December 31, 2020.
The act provides for free testing for individuals whether covered by company healthcare plans, Medicare or Medicaid. In addition, the IRS announced in Notice 2020-15 relief for payments made by high deductible health plans (HDHPs) permitting those plans to allow for Coronavirus testing, whether testing with a lower deductible or zero deductible, without causing those plans to be disqualified as an HDHP.
Emergency Paid Sick Leave
Under the Act, an employer must provide sick leave to the extent the employee is unable to work (or telework) because either:
- The employee is subject to a government quarantine or isolation order related to COVID-19;
- The employee has been advised by a health care provider to self-quarantine due to COVID-19 concerns;
- The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
- The employee is caring for an individual who is subject to an order in (1) above, or advised in (2);
- The employee is caring for a son or daughter of such employee if the school or care facility for the child has been closed, or the child care provider of the son or daughter is unavailable due to COVID-19;
- The employee is experiencing any other substantially similar condition as specified by the Secretary of Health and Human Services.
However, an employer of an employee who is a health care provider may elect to exclude such an employee from this requirement. The Secretary of Labor has the authority to exempt small businesses with less than 50 employees from the sick leave rules if the imposition of those rules “would jeopardize the viability of the business as a going concern.” The maximum for paid sick leave is $511 per day for a use described in 1-3 above, or $200 per day for a use described in 4-6 above, for a maximum of $5,110 or $2,000 per employee.
Emergency Family and Medical Leave
The Act provides employees up to 12 weeks of leave if the employee is unable to work (or telework) due to a need to care for a child under 18 if the school or place of care has been closed, or the child care provider of the child is unavailable, due to the Coronavirus. Note these qualifications are significantly different than those for emergency sick leave. Employers are required to pay at least 2/3 of the employee’s regular pay. The maximum required is $200 per day, or $10,000 overall.
Observation: Larger employers, those with more than 500 employees are exempt from the paid leave requirements. This is because the bill was intended to expand coverage of sick leave and most large employers already provide paid sick leave to their employees.
Observation: One of the difficult issues businesses will have to address is how to adapt their policies to deal with Coronavirus. Not all employees staying home from work would necessarily be eligible for paid sick leave under the bill, nor will their employers be able to claim credits with respect to sick leave paid. Because of the mandatory closing of schools throughout the country, millions of parents staying home would appear to qualify.
Employer Tax Credits
To assist employers with the cost of this paid sick leave and family leave, the bill provides for a tax credit to employers. This would work by an employer receiving a credit against their share of the social security OASDI tax (the 6.2% tax on earnings) as well as the 1.45% Medicare tax. The credit is refundable, meaning that if the credit exceeds the payroll tax liability for that period, a refund can be obtained.
The sick leave credit is based on 100% of the sick leave wages, limited to $200 per day per employee and a limit of 10 days. That credit increases to $511 per day if the employee is on sick leave because they are either subject to a government-mandated quarantine or isolation order, been advised by a health care provider to self-quarantine because of Coronavirus, or are experiencing Coronavirus symptoms and are seeking a medical diagnosis. The family leave credit for each employee is limited to $200 per day with a maximum of $10,000 (10 weeks or 50 days).
Employers cannot receive the sick leave credit if they’re also receiving the credit for paid family and medical leave for the same wages.
Credit for Self-Employed Individuals
For self-employed, the credit can be claimed against regular income tax. The limit on sick leave wages is based on the number of days (subject to limitation) he or she is unable to perform services in the trade or business times the lesser of 67% of their average daily self-employment income, or $200. The limits are increased to 100% and $511 respectively, in the case of the first three scenarios listed above. The same calculation is made for family leave wages, with a limit of 50 days, times the lesser of 67% of the taxpayer’s average daily self-employment income, or $200 for a maximum of $10,000.
Exclusion from FICA Taxes for Leave Payments
Under the Act, sick leave and family and medical leave paid under the Act will not be considered wages for purposes of the employer’s FICA tax of 6.2%.
We Can Help
New information on coronavirus and details on related relief packages is coming out every day, and we will do our best to stay on top of these developments. If you have questions about how Coronavirus might affect you or your business, please contact an Elliott Davis advisor.