IRS Issues Press Release Regarding Tax Credit and Related Issues On Families First Coronavirus Response Act

The joint press release on March 20, 2020 from the IRS and the DOL[1] foreshadows several important pieces of guidance that the agencies intend to release this week. The following summarizes what the agencies intend to include in their guidance.

Key points

  • Tax credits are available for sick and child-care qualifying leave payments.
  • Eligible employer tax credits will fully reimburse employers for all qualifying sick and child-care leave payments mandated under the Families First Coronavirus Response Act by reducing payroll taxes owed to the IRS.
  • Eligible employers will be entitled to an additional credit for the cost of maintaining health insurance coverage.
  • Employers will be able to file for accelerated payments to refund employers for qualifying leave payments in excess of federal payroll taxes owed.
  • Small businesses will be eligible for an exemption to the mandated sick and leave payments if they demonstrate that payment of child-care leave under the Act threatens the viability of their business.
  • Enforcement actions will be delayed by thirty days for employers that act reasonably and in good faith to comply with the Act.
  • The IRS press release is inconsistent with the Act in some respects, so we expect further clarification.
  • Large employers should remember that Code section 45S provides a tax credit for paid FMLA leave.

According to the IRS press release dated March 20, 2020, small and medium-sized employers that provide sick and child-care leave under the Families First Coronavirus Response Act (Act) will be fully reimbursed through tax credits and, in certain cases, refunds for the amount of leave paid to their employees. As of now, the tax credit applies to payments for sick and child-care qualifying leave payments provided by employers between April 2, 2020 and December 31, 2020. Eligible employers are defined as businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act.

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