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Group Health Plan Advisory (COVID-19): Departments of Treasury, Labor and the IRS Announce COVID-19 Related Tax Credits

March 24, 2020
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The Department of Treasury, the Department of Labor, and the IRS announced impending regulations that will help covered businesses with fewer than 500 employees and all government employers navigate the paid family and sick leave provisions of the Families First Coronavirus Response Act, including available tax credits, a small employer exemption, and a 30-day non-enforcement grace period.

Background

The Act provides that eligible employees of covered employers can receive:

  • Up to 80 hours of paid sick leave at 100% of the employee’s regular rate pay when the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis.
  • Up to 80 hours of paid sick leave at two-thirds of the employee’s regular rate of pay when the employee is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or childcare provider is unavailable for reasons related to COVID-19, and/or the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services.
  • Up to an additional ten weeks of expanded paid family and medical leave at two-thirds of the employee’s regular rate of pay when the employee is unable to work because of a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19.

Oswald Observations: All paid sick leave provided by the Act are available effective April 1, 2020, the date of implementation of the law. The benefits from the Act are not available for COVID-19-related absences occurring before April 1.

The government agencies need to supply guidance defining how businesses with fewer than 500 employees will be determined. Specific questions include: Will the controlled group regulations apply, or will the number of employees be determined on an EIN-by-EIN basis? Will the 500 number include both full-time and part-time employees?

Paid Leave Tax Credits

The Act makes available the following tax credits to help employers pay for this paid sick and family leave:

  • For an employee who is unable to work because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a tax credit up to $511 per day for a total of 10 days, $5,110 in the aggregate.
  • For an employee who is caring for someone with Coronavirus, or is caring for a child because the child’s school or childcare facility is closed, eligible employers may claim a tax credit for two-thirds of the employee’s regular rate of pay, up to $200 per day for up to 10 days, $2,000 in the aggregate.
  • In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose childcare provider is unavailable due to the Coronavirus, eligible employers may receive a refundable childcare leave credit. This credit is equal to two-thirds of the employee’s regular rate of pay, capped at $200 per day for up to 10 weeks, $10,000 in the aggregate.
  • Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for eligible employees during the leave period.

Eligible employers who pay qualifying sick or childcare leave will be able to retain an amount of the federal income taxes, the employee and employer shares of Social Security and Medicare taxes equal to the amount of qualifying sick and child care leave that they paid, instead of depositing them with the IRS.

Oswald Observation: Treasury and the IRS need to provide details regarding the reporting of payroll taxes withheld that pertain to the credits. Additionally, guidance is needed regarding the additional tax credits equal to the cost to maintain health insurance coverage for eligible employees during the leave periods, e.g., what costs can be included?

If there are not enough payroll taxes to cover the cost of qualified sick and childcare leave paid, employers will be able to file a request with the IRS for accelerated payment. The IRS expects to process these requests in two weeks or less, with further guidance on this issue coming in the next two weeks.

Examples:

  • An eligible employer pays $5,000 in sick leave and otherwise must deposit $8,000 in payroll taxes, including employee withholdings. The employer is entitled to 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 to deposit the remaining $3,000 with the IRS on its next regular deposit date.
  • An eligible employer pays $10,000 in sick leave and otherwise must deposit $8,000 in payroll taxes. The employer could use the entire $8,000 of taxes to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.

Small Business Exemption

Businesses with less than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or childcare unavailability, provided that the employer can show that compliance would jeopardize the ability of the business to continue. The DOL will be providing emergency guidance establishing simple and clear criteria defining the circumstances that will meet the criteria of jeopardy to the viability of an employer’s business as a going concern.

Non-Enforcement Period

The DOL will be issuing a temporary non-enforcement policy. Under the policy, the DOL will not enforce the Act until May 2, 2020 (30 days after its effective date), against employers that have acted reasonably and in good faith to comply.

Additional Resources 

Click Here To Review An Overview Of These Acts

DOL Families First Coronavirus Response Act FAQ

IRS COVID-19-Related Tax Credits FAQ

The Federal Employers Poster Notice

The Non-Federal Employers Poster Notice

DOL Published Poster Notice FAQ


Please contact your Oswald client team representative for further information.

Oswald Companies | Health Care Reform Implementation
Danielle Jarvis, Compliance Team Leader | 216.649.7384
Luke Clark, Sr. Benefits Consultant | 216.367.8758

Disclaimer: Materials are solely for informational purposes as an educational resource. Please contact counsel to obtain advice with respect to any specific issue.