Today, the Treasury issued new guidance for the Families First Coronavirus Response Act regarding COVID-related paid leave for workers’ health or to care for their families, as well as tax credits for businesses with 500 or fewer employees. With updates and new guidelines coming down every day, we wanted to breakdown what this new Act means for your small business. Reading the IRS website can sometimes feel like reading a foreign language. We’re here to make sense of it for you, so let’s dive in.
How does this impact your business?
Employers of businesses, along with tax-exempt organizations, with fewer then 500 employees are now required to provide emergency paid sick leave and emergency family and medical leave. This means that if you have an employee who is experiencing COVID-19 symptoms and can’t work, you as their employer is required to provide emergency paid sick leave. We’ll get into this more below.
Paid Sick Leave and Child Care Leave
Employers must pay up to 10 day or 80 hour of paid sick leave at 100% of the employees regular pay up to $511 per day for individuals quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis. OR If an employee is taking care of someone with COVID-19 or taking care of a child because school or daycare is closed, employers must pay two-thirds of the employee’s regular pay up to $200 per day.
In addition to the paid sick leave credit, if an employee is unable to work because of the need to care for a child, employers are required to pay two-thirds of the employee’s regular pay up to $200 per day up to 10 weeks.
But there’s help for employers in the form of payroll tax credits.
Refundable Payroll Tax Credits
If you are required to pay sick leave and child care leave wages under the Act, then every dollar paid can be claimed instantly as a payroll tax credit to offsetting your current payroll. If the credit is too large to be taken as a credit on that scheduled payroll run, then you can request accelerated relief that will be paid as a reimbursement from the IRS within 2 weeks. The IRS announced that a streamlined claim form will be released later this week.
Examples from the IRS website
Sometimes, we just can’t say it any better than our friends at the IRS. This is one of those times. So instead of rephrasing it, here are the paid sick leave and child care examples the IRS used:
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.
Equivalent child care leave and sick leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.
This is just the first of many updates to come. We’ll update this post as we learn more about the Act. If you’re a client of the inDinero family—including tempCFO, mAccounting, The Accountkeepers, and Nomad—know that your financial team is available by phone or email whenever you need them. We’re here to help you through this. If you’re not an inDinero client, check out our comprehensive article on the PPP to help guide your business during this crisis. Or talk an expert today to see how inDinero can help your business weather the COVID-19 storm.
Quick Note: This article is provided for informational purposes only, and is not legal, financial, accounting, or tax advice. You should consult appropriate professionals for advice on your specific situation. inDinero assumes no liability for actions taken in reliance upon the information contained herein.