By: Mark Ventola
March 25, 2020
The Families First Coronavirus Response Act (the “Act”) was signed into law on March 18, 2020. Two of the most important, and discussed, requirements of the Act are that employers provide emergency paid sick and family leave for absences that are related to COVID-19 for employees and their families. Details of the Act are discussed in depth in an article by my partners Karen Whitley and Liz Bailey, found on this resources page. This short piece will focus briefly on the method by which employers obtain full reimbursement of any benefits paid to employees for leave under the Act.
Recognizing that most employers, like most employees, are being placed under extraordinary and extreme financial pressure as a result of COVID-19 and the related cash flow concerns, Congress created a mechanism for quick and easy recovery of payments made to employees under the Act. In essence, employers are entitled to a “credit” against any payroll taxes due, for amounts paid to employees for these leaves, rather than making the usual payments to the IRS with each payroll. Thus, the crediting process takes place immediately, at the same time as each payroll run is processed. The normally withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes, that would otherwise be paid over, are now available as credits to offset required payments to employees under the Act for sick and family leave.
To the extent that payroll tax deposits that would otherwise be required are not sufficient to cover the cost of paid sick and family leave, employers can seek an expedited refund from the IRS by submitting a claim. Where a refund is owed, the IRS has indicated that it will send the refund on an expedited basis, generally in two weeks or less.
The amount of the credit is also increased by any health insurance expenses that the employer incurs to maintain health insurance for employees who are on one of these leaves.
The Treasury Department, the IRS, and the Department of Labor have all announced that they will provide additional guidance on this process later in the week. We will update this resource as soon as this guidance is available. In considering the timing, employers should keep in mind that the Act’s provisions on paid leaves are not effective until April 2, 2020.