The Families First Coronavirus Response Act (Families First Act) was approved by the Senate on March 18, 2020, and swiftly signed by the President into law.
While the Families First Act contains tax provisions, the primary goal was to ensure affected individuals receive paid leave, food assistance and unemployment insurance during this unprecedented time. The Families First Act is nuanced, and additional guidance is required. For now, here is our high-level summary of the Families First Act for our readers.
The Families First Act provides funding for Health and Human Services programs that aid elderly Americans, increases Medicaid funding to cover coronavirus testing, and requires insurers to cover coronavirus tests and related services without cost-sharing or prior authorization requirements. The Families First Act also provides emergency funding for various nutrition-related federal programs, including WIC and SNAP, and makes capital available for emergency transfers to states to process and pay unemployment benefits.
Emergency Family Leave and Medical Leave Expansion
The Families First Act expands the existing Family and Medical Leave Act (FMLA) to specifically address COVID-19 by creating an emergency paid leave program available through 12/31/2020.
Private sector employers with fewer than 500 workers, and all government entities, must provide up to 12 weeks of job-protected leave under FMLA for eligible employees unable to work because they must care for a child under 18 whose school or day care has closed due to COVID-19. An “eligible employee” is an employee employed for at-least 30 calendar days by the employer. “Work” for these purposes includes teleworking (working from home).
Under the program, the first 10 days of leave (first 2 weeks) would be unpaid unless the employee uses accrued paid time off (vacation, personal leave, sick days, etc.). After the first 10 days, employers must provide a benefit equal to at-least 2/3 of the employee’s normal pay rate, capped at $200 per day, for the remainder of the leave period (10 weeks or maximum of $10,000).
The Families First Act specifically authorizes the Secretary of Labor to issue regulations to:
- Exclude certain healthcare providers and emergency responders from eligibility; and
- Exempt small business with fewer than 50 employees if compliance would jeopardize the viability of the business as a going concern.
Employers with fewer than 25 employees are exempt from requirements to restore an employee’s original position if the position no longer exists because of economic conditions or changes to operations due to the public health emergency. To do so, the employer must demonstrate reasonable efforts to restore the employee to an equivalent position.
Emergency Paid Sick Leave
Private sector employers with fewer than 500 employees, and all government entities, must provide employees unable to work with immediate paid sick time to:
- Comply with a federal, state, or local quarantine or isolation order;
- Self-quarantine per a healthcare provider’s advice;
- Obtain a medical diagnosis if experiencing symptoms of COVID-19; or
- Care for an individual in mandatory isolation/self-quarantine and/or to care for a child whose school or day care has closed due to COVID-19.
Full-time employees receive 80 hours (8 hours/day for 10 days) while part-time employees receive time off equivalent to their normal two-week schedule. This paid sick time is a ‘use it’ or ‘lose it’ and is not eligible for carryover from year-to-year.
Unlike the emergency family leave discussed above, this paid sick leave is immediately available to all employees regardless of how long they have been employed. Also, employers cannot require an employee to use other available paid leave before using this newly created emergency paid sick leave.
From a cost perspective, the paid sick leave is capped at $5,110 per employee ($511/day for 10 days) for forced quarantine/isolation, self-quarantine or diagnosis; and $2,000 per employee ($200/day for 10 days) to provide care for another individual or child.
Employers are prohibited from:
- Requiring an employee to find a replacement to cover their hours during time off; and
- Discharging or discriminating against an employee for requesting paid sick leave or filing a complaint against the employer.
Employers are subject to civil penalties if they violate the paid sick leave requirement. Finally, the Secretary of Labor is authorized to issue regulations providing the same information outlined above in the emergency family leave and medical leave expansion section.
As a practical matter, we suggest you create a tracking system to account for and substantiate Emergency Sick Time used by employees that is separate and distinct from your existing practice of tracking sick time or paid time off. If you use time entry software, this may be as easy as creating a separate time entry code.
Employer Payroll Tax Credits
To offset the cost associated with the emergency family & sick leave programs discussed above, new refundable tax credits were created.
The refundable credits under the Families First Act offset the employers’ portion of Social Security taxes. The credits equal the required payments outlined above for each program (up to $200/day, maximum of $10,000, for emergency family leave and up to $511/day or $200/day for emergency sick leave, maximum of $5,110 and $2,000, respectively).
There is an important nuance with the refundable credits if the wages paid to the employee don’t reach the caps discussed. If that happens, the employer can include the cost of health insurance paid on behalf of the employee in the credit calculation. The credits are determined on a quarterly basis and reported on quarterly payroll filings (Form 941). We expect payroll service providers will provide practical guidance on how to provide related information needed to calculate the credit if they prepare your quarterly Forms 941.
The tax credits available in the Families First Act are only available for the 2020 tax year. Further, any credits received are included in gross income.
Self-Employed Tax Credit
If you are self-employed, the Families First Act provides relief for you, too.
IMPORTANT DEFINITION – An individuals’ average daily self-employment income is equal to the net earnings from self-employment for the taxable year divided by 260.
As to the family leave credit, self-employed individuals can receive a credit equal to the lesser of (1) $200/day or (2) 67% of their average daily self-employment income. The family leave credit can be received for up to 50 days (maximum $10,000).
For the paid sick leave credit, if you are forced into quarantine/isolation, self-quarantining, or seeking a diagnosis, your credit is the lesser of (1) $511/day or (2) your average daily self-employment income. The credit is available for up to 10 days (maximum $5,110). If you’re providing care for another individual or child, your credit is the lesser of (1) $200/day or (2) 67% of your average daily self-employment income (maximum $2,000).
Self-employed individuals must maintain documentation to support their eligibility for the credits. The documentation required will eventually be outlined by the Secretary of Treasury, however in the interim, we suggest self-employed individuals keep a contemporaneous daily diary.
If you are both an employee and self-employed, self-employed individual credits are reduced for any benefits you receive as an employee.
This is only the beginning of understanding this law. The House Ways & Means Committee has established an FAQ on their website that provides additional insight into the intent of the Families First Act and how it may affect your business. You may find their chart - Overview Employer Paid Leave Requirements and Tax Credit Provisions helpful too.
Our goal is to provide a high-level overview of new legislation as it becomes law. Contact us to discuss your situation in more detail so we may answer your questions and address your concerns.
We will continue following developments and guidance surrounding The Families First Coronavirus Response Act and provide updates as they become available via our COVID-19 Tax Resource Center.
Topics: Trump, IRS Guidance, COVID-19, Coronavirus Response Act, Paid Family Leave, Family and Medical Leave Act, Payroll Tax Credits, Self-Employed Tax Credit, Families First Act, Emergency Sick Leave