On Wednesday, March 18, 2020, President Donald Trump signed into law H.R. 6201, which provides paid leave benefits to employees, tax credits for employers and self-employed taxpayers and FICA tax relief for employers. Below are some key provisions included to help stabilize the country and its economy during the COVID-19 pandemic.
Emergency Paid Sick Leave. The Act requires employers with fewer than 500 employees to provide paid sick leave to employees who are forced to stay home due to quarantining or to care for a family member (“qualified paid sick leave”) or to care for a child if the school or place of care is closed (“qualified family leave”). The bill compensates employers and the self-employed for this paid leave in the form of a tax credit.
Employers must provide eligible employees two weeks of paid sick leave, paid at the employee’s regular rate, to quarantine or seek a diagnosis or preventative care for coronavirus; or paid at two-thirds the employee’s regular rate to care for a family member for such reasons, or to care for a child whose school or place of care has been closed due to the coronavirus.
Tax credits. To fully offset wages paid under the program, employers will receive a tax credit.
In the case of sick leave wages paid by an employer to an employee, the employer receives a refundable credit against its share of Social Security payroll taxes. The credit can be claimed on a quarterly basis, equal to 100% of the amount of sick leave wages paid under the new law.
The sick leave credit for each employee would be equal to the employee’s wages, limited to $511 per
day while the employee is receiving paid sick leave to care for themselves, or $200 if the sick leave is to care for a family member or child whose school is closed.
Family and Medical Leave Expansion Act. With respect to qualified family leave, eligible employees who have been on the job for at least 30 days have the right to take up to 12 weeks of job-protected leave if the employee is following a requirement or recommendation to quarantine due to the coronavirus, is caring for an at-risk family member who is following a quarantine requirement or recommendation, or is caring for a child whose school or place of care has been closed. After two weeks of paid leave, employees will receive a benefit from their employers that will be no less than two-thirds of the employee’s usual pay.
Self-employed individuals. The Act provides for similar refundable credits against the self-employment tax. It covers 100% of a self-employed individual’s sick-leave equivalent amount, or 67% of the individual’s sick-leave equivalent amount if they are taking care of a sick family member, or taking care of a child following the child’s school closing.
The sick-leave equivalent amount is the lesser of average daily self-employment income, or $511/day to care for the self-employed individual, or $200/day to care for a sick family member or child following a school closing.
For self-employed persons, the credit is allowed against regular income taxes. The limit on sick leave wages is determined by multiplying the number of days the self-employed person is unable to perform services in the trade or business by the lesser of 67% of the taxpayer’s average daily self-employment income, or $200. The limits are increased to 100% and $511, respectively, in the case of caring for themselves.
The same calculation is made for family leave wages, with days unable to perform services (no more than 50) multiplied by the lesser of 67% of the taxpayer’s average daily self-employment income, or $200.
FICA and Medicare taxes. Finally under the Act, sick leave and family and medical leave paid under the Act will not be considered wages for purposes of Social Security and Medicare taxes.
Note to DunlapSLK Payroll Clients. Your payroll team will be contacting you with further instructions on implementing these changes.
Effective date. The Act will take effect within fifteen (15) days of enactment and will be in effect until December 31, 2020.
DunlapSLK will continue to monitor this ever-evolving situation and bring you the latest updates on Congress’ attempts to lessen the burden of the COVID-19 pandemic. If you have questions, please contact us.