In these unprecedented times, employers have to absorb information rapidly as the landscape is evolving almost overnight as federal, state, and local authorities announce new laws and action plans.
We have assembled these frequently asked questions to provide general guidance related to your human resources function and the related tax implications of this Act.
Please contact us if you have additional questions or special circumstances that you need to discuss.
Q: When does the Act go into effect?
A: The Act established that it would go into effect within 15 days of the date of enactment (March 18, 2020), which is expected to be no later than April 2, 2020. Currently, the Act is scheduled to end on December 31, 2020.
Q: Does the Act apply to small businesses that employ fewer than 25 employees?
A: Yes, the Act applies to all private employers with less than 500 employees.
Q: What does the Act’s Emergency Paid Sick Leave provision actually provide?
A: The Act provides emergency paid sick leave for all employees in response to the novel coronavirus pandemic known as COVID-19. Full-time employees are entitled to 80 hours of paid sick time and part-time employees are entitled to a pro rata share of 80 hours, depending upon the employee’s average hours per week over a two-week period.
Employers must pay employees that are using the emergency paid sick leave to care for themselves the employee’s regular wage up to a maximum of $511/day, or $5,110 in the aggregate.
Employers must pay employees that are using the emergency paid sick leave to care for a person under quarantine or isolation due to exposure to or experiencing symptoms of COVID-19 two-thirds (2/3) of the employee’s regular pay, up to a maximum of $200/day, or $2,000 in the aggregate.
Q: How does an employee become eligible for emergency paid sick leave under the Act?
A: All employees, regardless of length of employment can become eligible in any of the following ways:
- The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID–19;
- The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID–19; or
- The employee is experiencing symptoms of COVID–19 and seeking a medical diagnosis.
- The employee is caring for an individual who (1) is subject to a Federal, State, or local quarantine or isolation order related to COVID-19 or (2) has been advised by a health care provider to self-quarantine due to concerns related to COVID-19.
- The employee is caring for their child if the child’s school or place of care has been closed, or if the child care provider of the child is unavailable, due to COVID-19 precautions.
- The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.
Employers of an employee who is a health care provider or an emergency responder may elect to exclude the employee from the Emergency Paid Sick Leave provisions of the Act.
Q: How much Emergency FMLA Leave is required?
A: The Act provides for 10 weeks of leave paid at 2/3 of the employee’s regular pay, up to a maximum of $200/day, for an employee to care for their child who is under 18 if the employee is unable to work or telework due to the child’s school or place of care has been closed, or the child care provider for the child is unavailable due to a public health emergency. However, the paid portion of the leave does not begin for 2 weeks (10 work days), which must be taken as unpaid leave unless the employee has available PTO or qualifies for the emergency paid sick leave provision of the Act. Employers cannot force an employee to use other available paid leave during this period.
Q: How does an employee become eligible for Emergency FMLA Leave under the Act?
A: Employees that have been employed for at least 30 days are eligible for Emergency FMLA Leave if the employee is caring for their child whose school or place of care has been closed, or the childcare provider of such child is unavailable, due to COVID–19 precautions.
Q: Will employers be reimbursed for wages paid under the Act?
A: Employers can claim a tax credit for 100% of the wages paid under the Act up to the amount of all payroll taxes paid on ALL employees’ wages from now until December 31, 2020. The wages paid are subject to the limitations of $200/day, $2,000 in aggregate per employee (Emergency Paid Sick Leave to care for another person) and $511/day, $5,110 in aggregate per employee (Emergency Paid Sick Leave for the employee’s personal use). Employers are also eligible for a tax credit for employees taking Emergency FMLA leave to the maximum credit of two-thirds (2/3) of the employee’s regular pay, up to $200/day, $10,000 in aggregate per employee. Employers should continue paying payroll taxes and take the credit on their next tax filing.
Q: How do I claim the tax credit?
A: The tax credit is taken by withholding the amount of the eligible credit from the employer’s payroll tax deposits. Employers can offset the amount of their eligible tax credit against the amount the employer is required to deposit for the employer and the employee’s share of the Social Security and Medicare taxes.
The Internal Revenue Service (IRS) issued a notice, IRS Notice IR-2020-57, that states that the tax credits can be taken against “withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of the Social Security and Medicare taxes with respect to all employees. However, this language appears to be contradictory to the language of the Act, which states that the credit may be applied against Social Security and Medicare taxes. Therefore, without further guidance from the IRS or the Department of Labor (DOL), we caution employers against using federal income tax withholdings as a method of taking the tax credit.
The IRS and DOL will issue regulations and guidance on how an employer may properly claim the tax credits. We will update this response when the IRS or DOL issue further guidance.
Q: Will employers have to pay FICA taxes on the benefits paid to employees under the Act?
A: Employers will not pay FICA taxes on leave paid pursuant to the Act. Employers will not report Social Security (OASDI) tax on the benefits. Employers will report Medicare tax, but they will receive a dollar-for-dollar credit for the Medicare tax.
Q: Will employees pay income tax and FICA on the paid leave they receive pursuant to the Act?
A: Employees will pay income tax and FICA (both SSA (OASDI) and Medicare).
Q: What if compliance with the Act will put such a burden on a small business that it will likely fail?
A: The Secretary of Labor has the authority to exclude businesses with fewer than 50 employees when the imposition of such requirements would jeopardize the viability of the business as a going concern. The DOL will issue regulations to better define when a small business is exempt or how to request exemption.
Q: Do I need to inform employees of their right to take emergency paid sick leave under the Act?
A: Yes, employers will need to post a model notice of the requirements of this Act, which is being prepared by the DOL.
Q: What is the procedure for employees to request leave under the Act?
A: The DOL has not issued guidance regarding how employees should request leave under the Act, though the DOL will likely issue said guidance prior to April 2, 2020. We recommend that employers continue to utilize their current FMLA procedures.