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

According to the IRS, eligible employers that pay qualifying sick and/or child-care leave will be able to retain an amount of federal payroll taxes equal to the amount of qualifying sick and child-care leave payments rather than depositing the federal payroll taxes with their quarterly payroll tax returns to the IRS. Per the IRS release, the payroll taxes available for retention are withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes “with respect to all employees.”

In the event that the amount of payroll taxes retained is insufficient to cover qualifying sick and child-care leave payments made by an employer, an employer will be able to file a request for an accelerated payment from the IRS, which the IRS expects to process within 2 weeks or less.

Under the examples provided in the announcement, the amount of qualifying leave credit is deducted from the amount of payroll taxes withheld and payable to the IRS.

Small business exemption

Small businesses of fewer than 50 employees will be eligible for an exemption from the emergency paid child-care leave mandates of the Act if compliance with the “leave requirements relating to school closing and child-care unavailability” would “jeopardize the viability of an employer’s business as a going concern.” The Department of Labor is expected to provide emergency guidance and rulemaking to articulate requirements related to the small business exemption.

Non-enforcement period

The Department of Labor intends to issue a “temporary non-enforcement policy” during which it intends to focus on compliance assistance for a thirty-day period. Enforcement actions will not be brought so long as the employer has acted reasonably and in good faith to comply with the Act. This could be a critical development for employers struggling to understand the parameters of the new law.

Large employers

As stated above, employers with more than 500 employees are not required to provide mandated sick or leave payments. However, to the extent such employers do provide paid leave under the FMLA, Internal Revenue Code Section 45S provides a tax credit for employers who provide paid family and medical leave to their employees. Eligible employers may claim the credit, which is equal to a percentage of wages they pay to qualifying employees while they are on family and medical leave. Employers must have a written policy in place that satisfies certain conditions to take advantage of this credit.

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