The COVID-19 pandemic has had a significant impact on both individuals and businesses of all shapes and sizes. Relief has come in various forms.
Alert: The initial law signed by President Trump on March 18 – the Families First Coronavirus Response Act – requires small employers with fewer than 500 employees to provide paid sick leave and family leave benefits to employees. It is already in effect. In turn, affected employers are in line for tax benefits.
Under the Families First law, employers must provide emergency paid sick leave of up to $511 per day for up to 10 days (up to $5,110 total) for an eligible employee in COVID-19 quarantine or seeking a coronavirus diagnosis. An employee can also receive emergency paid family leave of up to $200 per day for a maximum of ten days (up to $2,000 in total) to care for a quarantine family member.
The new law also gives employees the right to take up to 12 weeks of family leave for a COVID-19 quarantine. The employer must pay at least two-thirds of the employee’s usual pay, up to a maximum of $200 per day (up to $10,000 total).
But employers can claim a tax credit equal to the full cost of the emergency sick leave and family leave payments it makes. This new credit first offsets the Social Security tax components of the employer’s federal payroll tax bill. Any excess credit is refundable. Note: The new credit isn’t available to employers already receiving the family leave credit instituted by the Tax Cuts and Jobs Act (TCJA) of 2017.
Furthermore, sick leave and family leave payments required under the new law are exempt from the employer’s component of Social Security tax that normally applies to wages. Although employers still pay the Medicare tax components of the federal payroll tax, a credit can be claimed for that expenditure.
The Families First law also addresses self-employed taxpayers. If you’re affected by the coronavirus you can claim a refundable credit against your income tax liability, including the self-employment tax you owe. If the credit exceeds your bill, you are entitled to payment for the excess. The credit equals 100% of the sick leave equivalent plus two-thirds of the family leave equivalent for taking care of a sick family member or child out of school due to the pandemic.