What Do You Need to Know About the Tax Credits Included in the Families First Coronavirus Response Act (FFCRA)?

By Brian C. Bernhardt

As the country navigates the unprecedented-in-modern-times Coronavirus, our government aims to provide tax relief for employers. The new Families First Coronavirus Response Act, which goes into effect April 1, 2020, provides tax relief through employer payroll tax credits in 2020.

Credits for Sick Leave 

The FFCRA provides a refundable payroll tax credit covering 100% of sick leave wages paid to employees, for up to 10 days, who are under self-quarantine or getting tested for COVID-19, up to a maximum wage of $511 per day and a total of $7,156 per employee.  

The FFCRA  also provides a refundable payroll tax credit covering 100% of family leave wages paid to employees, for up to 10 days, who are caring for a family member affected by the coronavirus or a child following the child’s school closing, up to a maximum wage of $200 a day and a total of $10,000 per employee. Both of these credits may be claimed each quarter, but neither are available for employers receiving a credit for paid family and medical leave under the Tax Cut and Jobs Act.

Credits for Self-Employed Individuals

The FFCRA also provides a refundable payroll tax credit, allowed against regular income taxes, for self-employed individuals, for up to 10 days of sick leave. The credit covers 100% of a self-employed individual’s wages for sick leave (individuals who are under self-quarantine or getting tested for COVID-19), up to $511 per day. In order to determine the limit on the credit for sick leave wages, multiply the number of days the self-employed individual is unable to work by the lesser of (1) the taxpayer’s daily self-employment income or (2) $511. 

The FFCRA also provides a refundable payroll tax credit, allowed against regular income taxes, for self-employed persons, for up to 50 days of family leave. This credit covers 67% of the self-employed individual’s wages for family leave (caring for a family member affected by the coronavirus or a child following the child’s school closing), up to $200 per day. The limit on the credit for family leave wages is determined by multiplying the number of days the self-employed individual is unable to work by the lesser of (1) 67% of the taxpayer’s daily self-employment income or (2) $200.

Impact for Employers

For employers that already offer paid sick leave to employees, the credit provides an unanticipated tax benefit. Employers that don’t already provide paid sick leave, however, might face a challenge, as the credit will not necessarily cover the sick leave wages they now have to pay and those employers will have to wait three months to get the credit. 

One way the IRS is attempting to alleviate this potential liquidity issue is by allowing corporate taxpayers with up to $10 million in 2019 federal income tax liability to postpone payment of those 2019 taxes until July 15, 2020.  And while it has not yet happened, both the House and Senate, as well as the Treasury Department are considering extending the deadline for filing 2019 tax returns until July 15, 2020 as well.

If you have specific questions about how these laws affect you or your business, please contact us today.