COVID-19 Payroll Tax Credits – Sick/Family Leave
May 28, 2020

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Are you eligible for additional COVID-19 economic assistance through payroll tax credits? This is the first in a series of articles to introduce you to the new credits and assist you in determining how they might benefit your business during this difficult time.

The Families First Coronavirus Response Act (FFCRA) provides valuable tax credits to assist small businesses with paid leave expenses.  The credits can provide an important and immediate cash flow boost.

For the period April 1 - December 31,  2020, FFCRA provides, for businesses with fewer than 500 employees, tax credits to help offset eligible medical and family leave payroll expenses related to COVID-19 circumstances.  

Scenarios that may trigger family/sick leave benefits include:

  • An employee calls in sick because of COVID-19 symptoms, seeks medical advice and is waiting to hear back and/or is told to stay home from work;

  • An employee has underlying health issues and their doctor advises him/her to stay home from work (self-quarantine);

  • An employee has a child whose school or place of childcare has been closed or is unavailable due to concerns related to COVID-19 and the employee has no other care available so the employee must stay home with the child;

  • Childcare is available 3 days a week, but the employee must stay home with the child for the other two days of the week due to reasons listed in #3 above;

  • An employee has a family member with symptoms who is seeking medical advice, or the family member has been advised by a healthcare provider to self-quarantine and the employee needs to stay home and provide care.

In each of the above scenarios where the business is required to pay the employee’s sick/family leave pay, the business may also be eligible for tax credits. For example, under scenario #1 above, the employer can be reimbursed up to 80 hours for salary capped at $511 per day, plus health insurance and employer’s share of Medicare taxes.  

The tax credit and your cash savings can be obtained several ways. Form 941 payroll tax deposits can be reduced by the amount of the credit, or you can claim the tax credit on Forms 941 for the second, third and fourth  quarters. Alternatively, you can file Form 7200 to request an advance refund.

An important factor to consider is if your business receives a tax credit for qualified leave wages, those same wages are not eligible as “payroll costs” for the purpose of receiving loan forgiveness under the PPP loan program.

There are various rules, limitations and documentation requirements for the different sick/family leave scenarios. But the effort to run the calculations and obtain the documentation could possibly save your business thousands of dollars.  Regardless of whether you process your payroll in-house or use a payroll provider, we want to help you receive the credits that you are eligible for.

Please give us a call for more information.