Founder and Managing Partner
We’ve been getting a lot of questions about how the tax credits work in the Families First Coronavirus Response Act (FFCRA) as there has been a lot of confusion among business leaders and attorneys. We have recently seen some guidance that helps break it down and hopefully answers some of your questions.
IRS Publication re: Funding emergency paid sick leave
On March 20, 2020, the U.S. government provided some much-needed additional information regarding reimbursements to employers who are now required to provide paid emergency sick leave and emergency family medical leave for reasons related to COVID-19. As we have previously stated, employers with fewer than 500 employees will be subject to the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical Leave Act (EFMLA) starting on April 1, 2020, up through December 31, 2020. Previously, employers were told that they would get a tax credit for any sick leave payments made under either of these acts, but little other information was given.
Immediate access to offset against payroll taxes
Now, an IRS publication states that employers can retain payroll taxes, which it would typically pay to the IRS on a quarterly basis, in an amount equal to the amount paid to employees for qualifying leave. According to the government, employers may access those funds immediately, and they may take the funds from withheld income or employment tax liabilities that they would otherwise be required to pay to the IRS, including withheld federal income taxes, the employee share of Social Security and Medicare taxes and the employer share of Social Security and Medicare taxes. It is not clear whether an employer can use taxes that have been escrowed since the beginning of the year to pay for leave in a later quarter. The employer can pull from its share of taxes for all of its employees, not just the taxes for the employees who are actually taking the emergency leave. If an employer has insufficient payroll taxes to cover the cost of the leave, employers have the option of filing a request for an accelerated payment, the procedure for which we understand will be explained in an official government publication next week. The IRS expects employers requesting accelerated payment to receive the payment within two weeks. When the IRS owes the employer a refund, it will send it “as quickly as possible.”
On March 21, 2020, the NADA submitted a letter to the United States Department of the Treasury lobbying the Treasury and the IRS to deliver on their pledge to turn around applications for credits (that cannot be covered by income tax and payroll tax withholdings) in two weeks or less to assist cash flow and also urge them to permit dealerships to extend the due date on when they must deposit their withholdings. It remains to be seen whether the regulations will include the provisions NADA is requesting.
Department of Labor Publication re: FFCRA
Prior to today, it was unclear whether tax credits would be available for employers who provided paid sick leave prior to the enactment of FFCRA. However, the Department of Labor has now indicated that the FFCRA only applies to leave taken between April 1, 2020 and December 31, 2020 (take note that the effective date was originally scheduled for April 2, 2020, but the DOL publication today stated April 1).
The IRS claims that the EPSLA and EFMLA requirements will not be enforced for a 30-day period, provided employers are making a good-faith effort to comply with the law. The IRS is doing this so that the initial focus can be on helping employers learn how to adhere to the new Acts. As more practical information is released, we will provide further updates to assist you with navigating this novel process. If you need legal or other guidance on your tax practices, we suggest you speak with a CPA or a tax attorney.