How to Take Advantage of FFCRA Tax Credits

Mar 23, 2020 | COVID-19, Household Payroll & Taxes, Tax & Wage Laws

To help cover costs of paid sick and family leave requirements due to the coronavirus pandemic, household employers can take advantage of tax credits offered through the Families First Coronavirus Response Act. Here’s how.

President Trump signed the Families First Coronavirus Response Act (FFCRA) into law on Wednesday, March 18.

Part of the new law is the requirement for employers – including families who have an employee working in their home – to provide 80 hours of paid sick leave to their employees and up to 10 weeks of paid family leave for employees affected by COVID-19 who have been employed with you for at least a month.

Update: The U.S. Department of Labor Issues Guidance on Employer Responsibilities under FFCRA.

To help cover the costs of mandated leave, FFCRA provides employers two refundable payroll tax credits that are designed to immediately and fully reimburse them. Employers will be repaid, dollar-for-dollar, for the cost of providing coronavirus leave to their employees.

Read the IRS announcement on FFCRA tax credits.

Please note that you need to be paying your employee legally in order for them to take advantage of paid leave and for you to receive tax credits.

Paid sick and family leave tax credits

The paid sick time payroll tax credit can be claimed on a quarterly basis. It’s equal to 100 percent of the amount of sick leave wages paid to your employee with a limit of $511/day (or $5,110 total over the 10 days) if they are taking leave to care for themselves.

If the sick leave is used to care for an individual who is quarantined or showing coronavirus symptoms or a child whose school is closed, the limit is $200/day ($2,000 total).

If you pay your employee for paid family leave, a separate payroll tax provision provides a 100 percent credit against your share of the payroll tax for your employee. This credit is limited to $200/day ($10,000 total).

Child care leave credit

If your nanny can’t come to work (or your child’s school or daycare facility is closed) and you are unable to work yourself because you’re now caring for your child, your employer may receive a refundable child care leave credit. This credit is equal to two-thirds of your regular pay, capped at $200 per day or $10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit.

This also may apply if your employee can’t work for you because they need to care for their own child. You could continue to pay them and take advantage of the refundable child care leave credit.

Taking advantage of the tax credits

To take immediate advantage of the paid leave credits, employers can retain and access funds that they would otherwise pay to the IRS in payroll taxes.

Eligible employers will be able to claim these credits based on qualifying leave they provide between the April 1 (the effective date of FFCRA) and December 31, 2020.

Please note the new effective date announced by the Department of Labor of April 1. Based on the language in the bill, the effective date was widely believed to be April 2.

Employers are also entitled to an additional tax credit based on costs to maintain health insurance coverage for the eligible employee during the leave period.

How the FFCRA tax credits will work

When you pay your employee, you are required to withhold your employees’ share of Social Security and Medicare taxes (and federal income tax if agreed upon). You then remit these taxes, along with your share of Social Security and Medicare taxes, when you file quarterly payroll tax returns (Form 1040-ES) with the IRS.

Under guidance that will be released later this week, employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.

The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes.

If those amounts are not enough to cover the cost of paid leave, you can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released later this week. The IRS expects to process these requests in two weeks or less.

Download a Paid Sick Leave Request Form to Comply with FFCRA Documentation Requirement

Small business exemption

This exemption could include household employers. We’re awaiting further guidance on how it may apply to families with someone working in their homes.

Small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or child care unavailability where the requirements would jeopardize the ability of the business to continue. The exemption will be available on the basis of simple and clear criteria that make it available in circumstances involving jeopardy to the viability of an employer’s business as a going concern. The Department of Labor will provide emergency guidance and rulemaking to clearly articulate this standard later this week.

GTM can help

For GTM clients, contact us at (800) 929-9213 or [email protected] with any questions related to FFCRA or managing your employee during the coronavirus pandemic. We’ll be happy to help.

If you need to start paying your employee legally, call (800) 929-9213 for a complimentary, no-obligation consultation with a household employment expert.

We wish everyone good health and safety during these challenging and unsettling times.