Last week, President Trump signed into law the Families First Coronavirus Response Act (“FFCRA”), which requires employers with fewer than 500 employees to provide employees expanded family and medical leave and paid sick leave benefits for Coronavirus-related reasons. The FFCRA creates for certain private employers a refundable paid sick leave credit and paid child care leave credit that are intended to immediately and fully reimburse these employers, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees.
On March 20, 2020, the Internal Revenue Service (IRS) and Department of Labor (DOL) jointly issued News Release IR-2020-57 to provide preliminary guidance on how eligible employers can begin taking advantage of the two refundable credits under the FRCRA. According to this guidance, and additional forthcoming guidance, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS. The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes concerning all employees, not just those to whom the employer provides the qualified paid leave. If these amounts are not sufficient enough to cover the cost of qualified paid leave, the employer will be able file a request for an accelerated payment from the IRS.
The announcement provides the following helpful example to illustrate how the refundable credit will work in practice:
If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date. If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.
The agencies’ announcement states that the DOL will be issuing a temporary 30-day non-enforcement policy, during which time the DOL will not commence any enforcement action against any non-compliant employer if the employer has acted reasonably and in good faith to comply with the FFCRA.
