2020 Year-End Tax Guide

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COVID-19 Federal Wage-Related Tax Credits

Three fully refundable federal credits were born out of the COVID- 19 crisis: the emergency paid sick leave credit, the expanded family leave credit (expanded Family and Medical Leave Act, or FMLA), and the employee retention credit. This article presents a comparative analysis of the three credits. The emergency paid sick leave and expanded family leave credits were enacted into law by the Families First Coronavirus Relief Act (FFCRA). The FFCRA permits certain employees to take up to two weeks of paid sick leave and up to 12 weeks of expanded FMLA leave. Employers are able to take a corresponding credit for the amount of federally required leave pay. How much is the credit? The maximum credit is based on the reason for the employee’s absence. If the employee is absent to care for their own health, they are entitled to up to $511 per day of paid sick leave, or a maximum of $5,110. If the employee is absent to care for another person such as a child or parent, they are entitled to 2/3 of their regular rate of pay, up to $200 per day or a maximum of $2,000. The employer is not required to pay the employee the full amount of their regular wages. They are only obligated to pay the employee up to the maximum they are entitled to by law. EMERGENCY PAID SICK LEAVE CREDIT Purpose

Who is eligible to claim the credit? Private employers with fewer than 500 employees are required to pay emergency paid sick leave and are thus eligible for the credit. There is a small business exception for employers with fewer than 50 employees, but the exception only applies in certain limited circumstances. [The small business exception is beyond the scope of this article; please reach out to your Marcum advisor to discuss this further if applicable.] What expenses are eligible for the credit? If an employee is unable to work or telework for one of the six reasons related to COVID-19 defined in the FFCRA, sick leave wages up to a certain threshold are eligible for the credit. The six circumstances for COVID-19-related sick leave as explained in the FFCRA are: 1. The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19. 2. The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19. 3. The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis. 4. The employee is caring for an individual who is subject to an order as described in reason 1 or 2 above. 5. The employee is caring for a son or daughter whose school or daycare is closed for reasons related to COVID-19. 6. The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor. The credit is equal to the wages paid up to the maximum per day (either $511 per day or $200 per day), plus the 1.45% Medicare tax, plus the employer-paid health insurance (including health, dental, vision, prescription drug, and possibly HRA or health FSA contributions). Health insurance should be reduced by the amount of employee contributions.