Member Article

The Internal Revenue Service (IRS) continues to generously interpret theFamilies First Coronavirus Response Act(FFCRA), deploying the “qualified leave tax credit” to maximize the benefit for employers and provide speedy aid, while adding new conditions to the “qualified family leave” mandate. The FFCRA, enacted by Congress on March 18, 2020, mandated paid sick leave and an expansion of paid family leave for employers with fewer than 500 employees, beginning April 1, 2020 and ending December 31, 2020. Congress intended to foot the bill for this costly COVID-19-related policy via dollar-for-dollar tax credits for employers up to specified maximum dollar amounts. The FFCRA creates a refundable tax credit to reimburse employers 100% for wages paid to employees taking “qualified leave” (the “qualified leave tax credit”). Under the FFCRA, theEmergency Paid Sick Leave Actrequires employers provide employees paid sick leave not to exceed $511 per day for ten days for various COVID-19 related causes, andThe Emergency Family and Medical Leave Expansion Actrequires employers provide an additional ten weeks of paid leave up to $200 per day for family leave for workers unable to work (or telework) due to lack of child care from COVID-19 school and daycare closures. For information please visit Waller’s prior blog post on the FFCRA. Since the passage of the Act, subsequent amendments andthe IRS’s two press releases provide employers immediate relief and larger tax credits than expected. Further, the IRS procedure for employers to obtain qualified leave tax credits limits qualified family leave that employees can take under the FFCRA.

How is the qualified leave tax credit calculated?

Sections 7001 and 7003 of the FFCRA provide a refundable tax credit equal to the amount qualified leave wages paid by “eligible employers” plus its allocable cost of maintaining health insurance coverage for the employee during the sick leave period (“qualified health plan expenses”). See Appendix A for the statutory requirements for qualified sick leave and qualified medical leave. An eligible employer is an employer who (i) has fewer than 500 employeesat the time leave is takenby an employee, and (ii) are required under the FFCRA to pay qualified leave wages. The IRS went a step further in its March 31^stIRS News Release, “COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs” (hereinafter “IRS FAQ”), stating that the qualified leave credits will also include the employer’s share of the Medicare taxes on qualified leave wages, which is an additional 1.45%.(Employers subject to the Railroad Retirement Tax Act are not subject to either OASDI tax or Medicare tax on the qualified leave wages; thus, they do not get a credit for Medicare tax.)

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