Families First Coronavirus Response Act – Updated 12/1/2020

December 1, 2020 by Allison Stevens
Tax Services

The Families First Coronavirus Response Act, has been signed by the President and includes mandatory paid leave requirements and related tax credits that will affect many small businesses.  These rules were effective April 1, 2020.

Required Paid Leave

Employers with fewer than 500 employees are now required to provide two weeks of paid sick leave and up to twelve weeks of family and medical leave related to COVID-19.  The number of employees is based on the number of full-time and part-time employees as of the date the employee’s leave is to be taken.

For the family and medical leave, the first two weeks can be unpaid leave, paid sick leave, or covered by another form of paid leave.  The following ten weeks must be paid at two-thirds of the employee’s normal rate.

The paid sick leave must be paid at the employee’s regular pay rate if the employee is personally affected or two-thirds the normal rate if the employee’s family is affected.

Employers are allowed to create arrangements that combine telework and intermittent leave in certain situations.  The arrangement can use any increment to allocate the day between paid wages and paid leave when the employee works from home.  However, if the employee is still working at the normal worksite, the split between paid wages and paid leave must be done on full-day increments (i.e. Monday-Wednesday are paid time in the office and Thursday-Friday are paid sick or family leave).  Further, if the employee is personally affected by COVID-19 or caring for someone who is, they are not allowed to take paid sick leave intermittently while working at the worksite as the intent is to control the spread of the virus, so they should not be reporting to the worksite in these cases. 

Exceptions may apply for employers with fewer than 50 employees if providing the leave would jeopardize the business’s ability to continue.  This exception only applies to employees requesting leave because their child’s school or child care provider has closed due to COVID-19.  Nothing needs to be filed to receive the exemption, but employers should maintain documentation on why the leave was denied and how providing the leave would prevent the business from operating at a minimal capacity.

Payroll Tax Credit

Employers are now eligible for a refundable payroll tax credit for paying the mandated leave.  The refundable payroll tax credit equals wages paid under the new mandate (up to daily maximums) plus employer’s share of Medicare plus employer’s cost for health insurance.  The net cash effect to the employer of paying the mandated leave and offsetting payroll tax credit should be zero, assuming the paid leave does not exceed certain thresholds.

Only amounts paid for leave that is taken from April 1, 2020 through December 31, 2020 will qualify.  Any sick or family leave paid prior to April 1, 2020 is not eligible for the payroll credit.  In addition, if the employee is taking leave intermittently, only the pay covered by leave is eligible for the credit; any time paid for which they are actually working is not eligible.

Employees should provide appropriate documentation to their employer to support the payroll tax credit.  This includes things like the qualified reason for leave with a statement that the employee is unable to work or telework, dates for which leave is requested, and supporting documentation on the reason for the leave.  The supporting documentation may be items like a noted from a healthcare provider, a copy of the government quarantine or isolation order, or a notice from the school related to the closure.

Employee Treatment

Employees are still subject to their normal income tax, Social Security, and Medicare withholding on any paid leave they receive. 

Self-Employed Taxpayers

Self-employed taxpayers are allowed an income tax credit equivalent to the payroll tax credits when they file their 2020 tax returns.  This credit is allowed if the self-employed taxpayer is unable to work because they are affected by COVID-19, if they are caring for someone affected by COVID-19, or if they are unable to work because their child’s school or childcare provider is unavailable.

If you are self-employed and unable to work due to COVID-19, you will need to keep track of the days you were sick, quarantined, or caring for a child whose school or childcare was closed.  This information will be necessary to claim the credit on your personal tax return for 2020.

Impact of Business Closures

If employers close their business, they are not required to provide paid sick leave or paid family leave while the business is closed.  This is true whether the employer closes due to lack of business or because it was required to close pursuant to a federal, state, or local directive.  Employers are also not required to provide paid leave to furloughed employees.

If the business itself is required to close under the Minnesota Stay Home executive order, it is clear that the mandatory leave does not apply nor would the associated payroll credits be available.  However, the Minnesota order does not directly order all businesses to close, but rather directs employees not to go to work unless they work for an essential service.  There may be room to argue that the paid leave and associated payroll credits apply because the business itself was not ordered to close.  Employers who are in this situation may need to consult an attorney or decide whether to deny paid leave and risk employee complaints or provide leave that may not qualify for the tax credit if challenged by the IRS or future guidance provides clarity that disallows the credit.

Prompt Payment for Providing Mandatory Leave

The IRS issued guidance stating they want to ensure employers receive prompt payment for providing this mandatory leave.  As of writing this post, that guidance has not been finalized.  However, the IRS has indicated that employers may be able to delay remitting their employee withholding and/or request an accelerated payment from the IRS so they don’t have to wait for their quarterly payroll returns to be reimbursed.  More information to follow.

Please contact your Copeland Buhl representative if you are impacted by these new requirements and need additional assistance.

More information can be found on the Department of Labor’s website.