Refundable Tax Credits Under The Families First Coronavirus Response Act
By Amy E. Ebeling and Mary Ellen Schill
March 20, 2020
The Families First Coronavirus Response Act (H.R. 6201) (the “FFCRA”) (signed into law on March 18) and generally effective April 2, 2020 provides refundable tax credits for employers to offset the costs associated with the paid public health emergency leave (provided under an amendment to the federal Family and Medical Leave law) and paid sick leave required for employees under other sections of the FFCRA.
FFCRA provides a refundable tax credit for employers equal to 100% of qualified public health emergency leave wages and qualified paid sick leave wages required to be paid by the employer under FFCRA for each calendar quarter through the end of 2020. The credit itself is actually a credit against the employer’s portion of Social Security taxes (6.2% of wages paid by an employer) which the employer submits for the quarter in which the qualifying wages are paid. Both for-profit and non-profit employers are eligible, but governmental employers are not.
Qualified Public Health Emergency Leave Tax Credit
As stated above, FFCRA provides a refundable tax credit for employers equal to 100% of qualified public health emergency leave wages required to be paid by the employer under FFCRA for each calendar quarter through the end of 2020. While 100% of qualified public health emergency leave wages are eligible for the refundable tax credit, the amount of qualified public health emergency leave wages taken into account for each employee is capped at $200 per day and $10,000 for all calendar quarters.
Qualified Paid Sick Leave Tax Credit
FFCRA provides a refundable tax credit for employers equal to 100% of qualified paid sick leave wages required to be paid by the employer under FFCRA for each calendar quarter through the end of 2020. However, the cap on the wages taken into account is different for purposes of the paid sick leave requirement of FFCRA than it is for the qualified public health emergency leave wages. When an employee receives paid sick leave because they are subject to a quarantine or isolation order, have been advised by a health care provider to self-quarantine, or are experiencing coronavirus symptoms and seeking medical diagnosis, the amount of qualified sick leave wages taken into account for each employee is capped at $511 per day. If an employee receives paid sick leave because they are caring for another individual or child or because they are experiencing another substantially similar illness, the amount of qualified sick leaves wages taken into account for each employee is capped at $200 per day.
Also, in determining the total amount of an employer’s qualified sick leave wages paid for a calendar quarter, the total number of days that the employer can take into account with respect to an employee for that quarter may not exceed 10 days minus the number of days taken into account for that employee for all previous quarters.
Additional Tax Credit for Qualified Health Plan Expenses
In addition to the tax credit allowed for qualified public health emergency leave wages and qualified paid sick leave wages (as adjusted by the caps mentioned above), the tax credit available is increased for the “qualified health plan expenses” allocable to the qualified public health emergency leave wages or the sick leave wages (as applicable) for which a credit is allowed. “Qualified health plan expenses” means the amounts paid or incurred by the employer to provide and maintain a group health plan. For each particular employee for which the qualified public health emergency leave or sick leave wage credit is allowed for a quarter, the allocation of qualified health plan expenses is the total qualified health plan expenses for that quarter, first allocated pro rata among all covered employees during the quarter, and then allocated to the particular employee based on the periods of health plan coverage that relate to the periods of leave for which the credit is given.
Tax Credits are Refundable
If the total tax credits exceed the employer’s total liability for their portion of the Social Security taxes for all employees for any calendar quarter, the excess will be refunded to the employer as a refundable credit.
No Double Dipping!
If an employer takes a tax credit for the extended FMLA and/or paid sick leave wages under FFCRA, then the employer’s taxable income is increased by the amount of the credit. This prevents an employer from taking a deduction for the wages and also getting the tax credit. However, an employer can elect not to have the tax credit apply and instead simply continue to take the tax deduction for the wages paid.
At this time, we have no information procedurally on how these credits should be claimed and when they should be claimed. The law requires the Secretary of the Treasury to issue additional regulations and guidance. We are hopeful that the Treasury will issue additional information within the next few days, but historically, the Treasury has been slow to issue additional guidance on new tax laws.
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