Employer Tax Credits for EPSLA and EFMLEA
Updated April 21, 2020
Employers can receive a credit against payroll taxes for 100% of the employer-paid qualified sick leave wages paid each calendar quarter, subject to specified limitations.
Eligible employers that pay qualified EPSLA wages and EFMLEA wages each calendar quarter may take credit against payroll taxes for 100% of the employer-paid leave, plus the allocable qualified health plan expenses and the amount of the employer’s share of Medicare tax imposed on those wages, rather than depositing them with the IRS, subject to specified limitations.
The credits allowed to employers for wages paid under EPSLA and EFMLEA are increased by the amount of the 1.45% hospital insurance portion of FICA on wages for which credit is allowed under FFCRA.
To receive this relief more rapidly, employers may reduce their quarterly payroll tax payments right away. The tax credits are refundable to the extent they exceed the employer’s payroll tax. However, if the withholdings are insufficient to cover the sick leave payments, employers can request an accelerated refund/advancement from the IRS. https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs
- What’s included? The federal employment taxes that are available for retention by eligible employers include federal income taxes withheld from employees, the employees’ share of social security and Medicare taxes, and the employer’s share of social security and Medicare taxes with respect to all employees.
- When? FFCRA applies only to wages paid with respect to the period beginning on April 1, 2020 and ending on December 31, 2020. The tax credits and advancements will be available through December 31, 2020.
- Not Wages to Employee: The wages required to be paid to employees under the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act shall not be considered wages for purposes of the Federal Insurance Contributions Act (FICA). Transfers to specified Social Security trust funds are authorized to cover reductions in revenues.
- Where is money coming from? Funds shall be transferred from the general fund of the Treasury to cover reductions in revenue resulting from this federal tax credit.
- No Double Dipping: An employer may not use the Employee Retention Credit for any qualified wages receiving tax credits under the EPSLA or the EFMLEA under the Families First Coronavirus Response Act (FFCRA).
- Record Keeping: Employers must request certain information and retain the information for 4 years in order to obtain the tax credits.
Emergency Paid Sick Leave Act (EPSLA)
- How much does an employer pay under the Emergency Paid Sick Leave Act?
- EMPLOYERS: The amount of sick leave wages taken into account for purposes of the tax credit is equal to the lesser of: (1) the amount of the employee’s leave pay; or (2) the caps specified under law of either (a) $511 per day, or (b) $200 (depending on the reason for the leave).
- SELF-EMPLOYED: Refundable income tax credit for 100% of sick leave amounts of self-employed individuals under the Emergency Paid Sick Leave Act. For other employees, the credit percentage is 67. Self-employed individuals must maintain documentation prescribed by the Internal Revenue Service to establish eligibility for the credit.
- How long is the leave for employees under the Emergency Paid Sick Leave Act? The aggregate number of days for employee leave is limited to 10, over the number of days taken into account for preceding calendar quarters.
Emergency Family and Medical Leave Expansion Act (EFMLEA)
- How much does an employer pay under the Emergency Family and Medical Leave Expansion Act?
- EMPLOYERS: After the first 10 days which are unpaid and not reimbursable with tax credits, employers must pay not less than two-thirds of an employee's regular pay for the number of hours per week the employee normally works. The maximum amount of compensation for such leave is $200 per day and $10,000 in aggregate.
- SELF-EMPLOYED: Refundable income tax credit for 100% of the qualified family leave amounts of self-employed individuals, subject to a specified formula for determining the leave amounts. Self-employed individuals must maintain documentation prescribed by the Internal Revenue Service to establish eligibility for the credit.
- How long is the leave for employees under the Emergency Family and Medical Leave Expansion Act (EFMLEA)? Employers of fewer than 500 workers must provide up to 12 weeks leave for an employee who cannot work because the school or child-care provider of that employee's child is closed, or the childcare provider is unavailable, as a result of a public-health emergency.
The information above is intended to act as a general resource and therefore does not address all considerations and jurisdiction-specific analyses that may need to be undertaken prior to taking action. Thus, employers should seek specific counsel.