The Families First Coronavirus Response Act – A Summary
- Mar 20, 2020
On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (the “Act”). The Act, one of many pieces of legislation that will address the various impacts of the COVID-19 pandemic, includes provisions that –
- Expand food security initiatives.
- Establish a federal emergency paid leave benefits program to provide payments to employees taking unpaid leave due to the coronavirus outbreak.
- Expand unemployment benefits and provide grants to states for processing and paying claims.
- Require employers to provide paid sick leave to employees.
- Establish requirements for providing coronavirus diagnostic testing at no cost to consumers.
- Treat personal respiratory protective devices as covered countermeasures that are eligible for certain liability protections.
- Temporarily increase federal Medicaid funding.
- Provide new tax credits to offset new costs associated with paid emergency leave and sick leave benefits implemented under the Act, as well as provide credit for health plan expenses associated with emergency and sick leave wages.
This Alert focuses on family paid leave, paid sick leave and related tax credit provisions of the Act.
Paid Family Leave
Under the Act, eligible employees may take leave if the employee is unable to work (or telework) due to a need for leave to care for a child under 18 years of age if the school or place of care has been closed, or the child care provider of the child is unavailable, due to a COVID-19 emergency as declared by a federal, state, or local authority.
The Act provides eligible employees with the right to take up to 12 weeks of job-protected leave. The first ten days may be unpaid, though an employee may elect to substitute any accrued vacation leave, personal leave, or medical or sick leave for unpaid leave. After ten days of unpaid leave, an employer is required to pay an amount not less than two-thirds of an employee’s regular rate of pay up to $200 per day/$10,000 in the aggregate. Eligible employees include those who work for employers with fewer than 500 employees and who have been employed for at least 30 calendar days.
Employers who are health care providers or emergency responders may elect to exclude employees from this leave provision.
This provision applies takes effect not later than 15 days after the date of enactment of the Act and expires on December 31, 2020.
Paid Sick Leave
Two weeks of emergency paid sick leave is required to be paid by certain employers (including generally private employers of 500 or fewer employees) if the employee is unable to work (or telework) due to the following COVID-19 related reasons:
- 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.
- The employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis.
- The employee is caring for an individual who is subject to a quarantine or isolation or has been advised to self-quarantine by a health care provider.
- The employee is caring for a child whose school or place of care has been closed, or the child care provider is unavailable, due to COVID-19 precautions.
- The employee is experiencing any other condition substantially similar to COVID-19, as specified by the Secretary of Health and Human Services.
Full-time employees are entitled to 80 hours of paid sick leave at 100% of the employee’s regular rate of pay (or the federal, state, or local minimum wage, whichever is greater), not to exceed $511 per day/$5,110 in the aggregate, where the employee is unable to work because the employee is subject to quarantine or isolation, has been advised to self-quarantine and/or is experiencing symptoms of COVID-19 and is seeking a medical diagnosis. Full-time employees unable to work due to all other reasons noted above are entitled to 80 hours of paid sick leave at not less than two-thirds of the employee’s regular rate of pay, not to exceed $200 per day/$2,000 in the aggregate. Part-time employees are entitled to a number of hours equal to the number of hours that the employee works, on average, over a two-week period. The amount of paid sick time is not dependent on the length of time the employee has been employed by an employee. Paid sick time provided under the Act ceases after the termination of the need for paid sick time. It does not carry over from one year to the next.
Employers who are health care providers or emergency responders may elect to exclude employees from the emergency paid sick leave provisions of the Act.
This provision takes effect not later than 15 days after the date of enactment of the Act and expires on December 31, 2020.
Small Business Exemption
Small businesses with fewer than 50 employees are eligible for an exemption from the family and sick leave requirements relating to school closings or child care unavailability where the imposition of such requirements would jeopardize the viability of the business as a going concern.
Employer Tax Credits
The Act provides employers tax credits to offset costs associated with the paid sick leave and paid family leave provisions of the Act. Specifically, the Act provides a refundable tax credit against the employer portion of Social Security payroll taxes for each calendar quarter equal to 100% of the “qualified” sick leave wages and “qualified” family leave wages paid by an employer.
The amount of payroll credit for the required paid family leave cannot exceed two-thirds of the employee’s regular pay, capped at $200 per day ($10,000 for all calendar quarters).
The amount of qualified sick leave wages taken into account for the payroll credit (at the employee’s regular rate of pay) is capped at $511 per day where an employee is subject to a quarantine or isolation order, has been advised by a health care provider to self-quarantine or is experiencing symptoms of COVID-19 and seeking a medical diagnosis. The amount cannot exceed two-thirds of the employee’s regular pay, capped at $200 per day, in cases where an employee receives paid sick leave for all other reasons described above.
In determining the total amount of an employer’s qualified sick leave wages paid for a calendar quarter, the aggregate number of days taken into account for an employee may not exceed ten minus the aggregate number of days so taken into account for all preceding quarters.
With respect to both required paid family leave and sick leave, special rules are provided to allow a credit for certain self-employed individuals.
Both the paid leave and sick leave credits are increased to include so much of the employer’s group health plan expenses as are properly allocated to the wages for which the credit is allowed (and which are excluded from the gross income of employees under the provisions of the Internal Revenue Code – IRC Sec. 106(a)). Health plan expenses are properly allocated to qualified wages if made on a pro rata basis among covered employees and on the basis of periods of coverage.
The amount of the paid sick leave and paid family leave credit allowed to an employer in any calendar quarter cannot exceed the total payroll tax imposed on the wages paid with respect to the employment of all employees of the employer. If the amount of the credit that otherwise would be allowed exceeds the limitation, then the excess is treated as an overpayment to be refunded to the employer.
Employers must include the amount of the credits in their gross income. Also, no credit is allowed for wages for which a credit is claimed under IRC Sec. 45S (“Employer Credit for Paid Family and Medical Credit”). In accordance with IRS Notice 2020-21, the credits are available only for the period beginning April 1, 2020 and ending on December 31, 2020.
With the governmental response to the COVID-19 pandemic evolving quickly, we will continue to keep you informed of relevant new developments.
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Richard J. Shapiro
Richard Shapiro, Tax Director and member of EisnerAmper Financial Services Group, has more than 40 years' experience in federal income taxation, including the taxation of financial instruments and transactions, both domestic and international.
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