Q: Is your business eligible for the paid leave credit for certain COVID-19-related time off?

A. The Families First Coronavirus Response Act, signed into law March 18, temporarily requires covered employers to provide paid sick and family leave for employees in certain situations related to the coronavirus (COVID-19) pandemic. Employers’ increased costs will be offset by new tax credits.

The tax credit up close

The Families First act generally requires employers with fewer than 500 employees to provide paid leave in certain COVID-19-related situations as detailed below. Covered employers generally can take a federal payroll tax credit for 100% of the qualified sick and family leave wages they pay each quarter. The credits generally are available only to employers required to provide benefits by the new law.

The amount of wages taken into account for paid sick leave is limited to $511 per day for leave taken for the employee’s own illness or quarantine and $200 for leaves taken to care for others. The amount of wages taken into account for the paid family leave for each employee is capped at $200 per day and $10,000 for all calendar quarters.

Wages taken into account when computing the credit amount won’t be taken into account when computing the existing Section 45S business tax credit for paid family and medical leave.

Paid sick leave

Under the Families First act, in certain situations covered employers generally must provide 80 hours of paid sick leave for full-time employees and, for part-time employees, paid sick leave for the average number of hours worked over a two-week period.

An employee qualifies for the leave when he or she is unable to work (or telework) because the employee:

Is subject to a COVID-19-related quarantine or isolation order,
Has been advised by a health care provider to self-quarantine,
Is experiencing COVID-19 symptoms and seeking a medical diagnosis,
Is caring for an individual subject to a COVID-19-related quarantine or isolation order,
Is caring for a son or daughter whose school or place of care has been closed, or whose childcare provider is unavailable, due to COVID-19 precautions, or
Is experiencing substantially similar conditions specified by the U.S. Secretary of Health and Human Services.

When leave is taken for an employee’s own illness or quarantine (reasons 1 through 3 above), the leave is required to be paid at the employee’s regular rate, but no higher than $511 per day ($5,110 total). For leave taken for reasons 4 through 6 above, the leave is required to be paid at two-thirds of the regular rate, capped at $200 per day ($2,000 total).

Note that exemptions and additional rules apply.

Family and medical leave

The Families First act amends the federal Family and Medical Leave Act (FMLA) for employers with fewer than 500 employees. In certain situations, covered employers generally must provide employees who’ve been on the job for at least 30 calendar days with up to 12 weeks of job-protected leave, part of it paid.

The new law generally requires the leave in circumstances where an employee is unable to work (or “telework”) due to a need to care for a minor child whose school or paid place of childcare has been closed or is unavailable due to COVID-19.

The FMLA generally requires only job-protected leave, not paid leave. For leave under the new law, only the first 10 days of leave may be unpaid. (Those 10 days might, however, qualify for paid sick leave.)

After 10 days, covered employers must provide paid leave at two-thirds of an employee’s usual rate. The pay requirement is limited, however, to $200 per day and $10,000 total per employee.

Again, exemptions and additional rules apply.

Next steps

Under the Families First act, these provisions expire on Dec. 31, 2020. But it's possible they could be extended. Contact your tax advisor with any questions you have about the tax credits.