Coronavirus Law Provides Employee Leaves and Employer Credits

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Employee Leave for COVID-19 Circumstances


Last Wednesday, the Families First Coronavirus Response Act was enacted into law. One part of this extensive law gives employees of small and midsized businesses the right to use unpaid and paid leave under certain circumstances related to the COVID-19 emergency and requires employers to allow this leave to their employees. The leave is available to employees between April 2 and December 31, 2020.


This Alert provides general information on the eligibility conditions for employees to receive the leave and the requirement of employers to provide it. Businesses should consult a labor attorney for legal advice before taking any action regarding employee leaves.


Two types of leave are available:


  • Childcare leave for parents who cannot work because their minor child's school or childcare service is closed due to the COVID-19 emergency, and
  • Paid sick leave for employees who are directly impacted by COVID-19 or who care for an individual so impacted.


The Act also creates a tax credit to reimburse employers for much of the cost of providing this leave. The second half of this Alert addresses how the tax credit is computed and claimed by employers.


For more detail on the two types of leave, Click here.


Employer Tax Credit for COVID-19 Employee Leave


On Friday, the IRS and US Department of Labor announced dollar-for-dollar credit relief for small and midsize employers who provide COVID-19-related leave to their employees under the Families First Coronavirus Response Act as discussed in the accompanying alert. The new law was passed by Congress and signed by the president last week. The credits are available for qualifying leave provided until December 31, 2020.


Businesses should consult a labor attorney for legal advice before taking any action regarding employee leaves.


There are two parts to the credit. Each has different requirements and limitations:


  • Childcare leave credit reimburses employers for leave provided to employees who must care for children whose school is closed or whose regular childcare provider is not available.
  • Paid sick leave credit reimburses employers for leave provided to employees who themselves have been directly affected by the virus or who are caring for directly affected individuals.


For more detail on employer credits for childcare & paid sick leave, Click here.


Prompt Payment to Employers


The funds will be provided quickly by means of an immediate dollar-for-dollar credit offset against the employer's payroll taxes payable to the IRS. To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes for all employees. This includes withheld federal income taxes and both the employee and employer share of Social Security and Medicare taxes.


If those amounts are insufficient to cover the cost of paid leave, employers can seek an expedited refund from the IRS by submitting a streamlined claim form that will be released this week. The IRS says it expects to process these requests in two weeks or less.


As an example, an employer who pays $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes (including taxes for all employees) could use up to $5,000 of the $8,000 of taxes it was going to deposit to make qualified leave payments and deposit only $3,000 on its next regular deposit date. An employer who pays $10,000 in sick leave and is required to deposit $8,000 in taxes may use the entire $8,000 of taxes in order to make qualified leave payments, make no deposit, and file a request for an accelerated credit for the remaining $2,000.


During this crisis, your LMC professional is available if you have questions related to the latest updates on this topic. All our prior Alerts are available on the Updates page of our website.


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