On Wednesday, March 18, President Trump enacted a coronavirus emergency relief package, the Families First Coronavirus Response Act. The legislation includes relief for American workers required to take time off work because of the coronavirus, the Emergency Paid Leave Act of 2020. In order to help employers manage the cost of paid sick leave, the aid package also includes new tax credits designed to offset the financial burden.
The bill establishes payroll tax credits that are refundable through 2020 for employers with workers who take leave under the new paid leave programs (sick leave and/or family leave). The credit is equal to up to 10 days of leave wages per employee who goes on leave. For reference, here are the limits on sick leave and family leave included in the legislation:
- Sick leave guidelines:
- Eligible full-time workers who are sick or quarantined can receive wages equaling their full pay, up to $511/day (with a maximum of $5,110).
- Eligible full-time workers who are caring for an ill family member or child whose school or daycare has closed can receive wages equaling two-thirds of their regular pay, up to $200/day (with a maximum of $2,000).
- Eligible part-time workers can receive sick leave equal to the average number of hours they work in a two-week period.
- Family leave guidelines:
- Eligible workers who are caring for a child whose school or daycare has closed can receive two-thirds of their regular salary, up to $200/ day (with a maximum of $10,000)
The new tax credit comes in the form of a refund on an employer’s Social Security payroll tax. The credit has the same limitations as the leave for workers: $511 per day for workers who take leave due to sickness (maximum of $5,110) or quarantine and $200 per day for workers who take leave to care for another person (maximum of $2,000). Like the number of sick leave days, the tax credit is limited to 10 sick days per worker.
Additionally, the new legislation includes payroll tax credits for both the group health plan costs for workers on sick or family leave and the Medicare payroll tax on sick and family leave wages.
Employers who pay sick leave and family leave wages can expect to be reimbursed via a payroll tax credit for the entire amount. In the event that the tax credit exceeds what the employer owes in taxes, they will be given a refund for the remaining amount.