UPDATE - COVID-19 Tax Impacts - Families First Coronavirus Response Act

Rödl & Partner Tax Matters Vol 2020 – 2, published March, 19 2020

On March 18, 2020, the President has signed into law the Families First Coronavirus Response Act (H.R. 6201) which provides affected individuals with paid sick and family leave, creates tax credits for affected employers, expands food and nutrition services, allows for emergency state unemployment insurance grants, and increases Medicaid funding to states, among other things.

Significant provisions of the bill include:

Modifications to the Family and Medical Leave Act

• The Family and Medical Leave Act of 1993 (the "FMLA") is amended to create a new category of benefits available until December 31, 2020.
• Benefits generally apply in the case of a qualifying need related to the COVID-19 public health emergency. A qualified need means generally "unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable, due to a public health emergency."
• The FMLA's employer threshold is modified by using a "fewer than 500 employees" standard. The Secretary of Labor is authorized to provide exclusions for certain health care providers and emergency responders and to exempt small businesses with fewer than 50 employees in certain cases.
• The new law applies to "covered employers" as well as certain other entities that are engaged in commerce or an industry or activity affecting commerce. A "covered employer" is defined as a person engaged in commerce or in any industry or activity affecting commerce that (1) in the case of a private entity or individual, employs fewer than 500 employees, and (2) in the case of a public agency or other entity, employs one or more employees.

Emergency Family and Medical Leave

• Private sector employers with fewer than 500 workers and government entities have to provide as many as 12 weeks of job-protected leave to employees to care for a child whose school or place of care is closed.
• The first 10 days can be unpaid, although a worker could choose to use other accrued leave.
• Employers are required to pay employees two-thirds of their wages, not to exceed $200 per day and $10,000 in the aggregate.

Emergency Paid Sick Leave Act

• Private sector employers with fewer than 500 workers and government entities have to provide to employees up to 80 hours (or the equivalent for part-time employees) of paid sick time because the individual is unable to work due to specific needs of the employee related to COVID-19 including:
1.   Is subject to a federal, state, or local quarantine or isolation order relating to COVID-19
2.   Has been advised by a health care provider to self-quarantine due to concerns relating to COVID-19
3.   Is experiencing symptoms of COVID-19 and is seeking a medical diagnosis
4.   Is caring for an individual who is subject to an order described in the first category above or has been advised by a health care provider as described in the second category above
5.   Is caring for a son or daughter of such employee if the school or place of care of the child is closed or the child's care provider is unavailable due to COVID-19 precautions, or
6.   Is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretaries of Treasury and Labor.

• Payments for sick leave are limited to: $511 per day and $5,110 in the aggregate in the case of the first three categories (on leave because of their own health issue) and $200 per day and $2,000 in the aggregate for the other categories (to care for others).
• This sick leave is in addition to any regularly-provided annual sick leave.

Tax credits

The bill includes several tax credits.

Credit for required sick leave

• Generally provides an employer payroll tax credit equal to 100% of the qualified sick leave wages paid under the Act. 
• The credit applies against the OASDI taxes or "Tier 1" excise tax (relating to the Railroad Retirement Act). 
  
  The tax credit is generally available for wages of up to either $511 or $200 for each day an individual is paid qualified sick leave, depending upon the category in which the individual falls for purposes of determining the amount paid for sick leave.
  
• The total number of days taken into account in each calendar quarter cannot exceed 10 days and is reduced by the number of days so taken into account in preceding calendar quarters. 
• The amount of the credit for any calendar quarter generally cannot exceed the OASDI tax imposed for such quarter. The law also includes refundability provisions for credits that exceed tax liability.
  
• The amount of the credit is increased by so much of the employer's "qualified health plan expenses" as are properly allocable to the qualified sick leave wages for which the credit is allowed. 
• The law also provides that gross income of employers is generally increased by the amount of the new credit. 
• No credit is allowed for wages for which a credit is allowed under Code section 45S (relating to the family and medical leave credit).
  
• The credit does not apply to the government of the United States, any state, any subdivision of a state, or any agencies or instrumentalities of the foregoing. 
• Employers can elect not to apply the new provision for any calendar quarter. 
• The law also allows an eligible self-employed individual a refundable credit against income taxes with respect to qualified sick leave equivalent amounts.

Credit for required family leave

• Generally provides an employer payroll tax credit for each calendar quarter equal to 100% of the qualified family leave wages paid by the employer to comply with the Act

• The credit applies against the OASDI taxes or "Tier 1" excise tax (relating to the Railroad Retirement Act).

• The amount of wages taken into account for the credit for each individual cannot exceed $200 for any day for which the individual is paid qualifying family leave wages. In aggregate, a maximum of $10,000 in wages per employee for all calendar quarters is eligible for the credit.

• All other provisions are the same as with the credit for required sick leave

We have made reasonable efforts to ensure the accuracy of the information contained in this publication, however this cannot be guaranteed. Neither Rödl Langford de Kock LP nor any of its subsidiaries nor any affiliate thereof or other related entity shall have any liability to any person or entity which relies on the information contained in this publication, including incidental or consequential damages arising from errors or omissions. Any such reliance is solely at user's risk.

Any tax and/or accounting advice contained herein is based on our understanding of the facts, assumptions we have been asked to make, and on the tax laws and/or accounting principles in effect as of the date of this advice. No assurance is given that the conclusions would be the same if the facts or assumptions change, or are not as we understand them, or that the tax laws and/or accounting principles will not change subsequent to the issuance of these conclusions. In addition, we do not undertake any continuing obligation to advise on future changes in the tax laws and/or accounting principles, or of the impact on the conclusions herein.

No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Rödl Langford de Kock LP.

Copyright © March 2020 Rödl Langford de Kock LP
All rights reserved.