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President Trump signed the Families First Coronavirus Response Act on March 18, 2020.  Division E of the Act provides for employers to be reimbursed dollar-for-dollar for coronavirus-affected paid sick leave and paid child care leave via payroll tax credits.  On March 20, the Treasury Department, the IRS and the Department of Labor announced plans for implementation of these provisions of the Act in IR 2020-57.

These provisions apply to businesses with fewer than 500 employees.  A business will receive a refundable tax credit to reimburse it dollar-for-dollar for providing coronavirus-related paid leave to employees.  Coronavirus-related leave is leave taken by employees who cannot work due to coronavirus-related Federal, State or Local quarantine or has been advised to self-quarantine, or because they have coronavirus symptoms or is seeking a medical diagnosis, or employees who are caring for an individual who is quarantined or self-quarantined, or the employee is caring for a son or daughter whose school or care facility is closed, or whose care provider is unavailable, due to COVID-19.

For each employee who is on coronavirus-related leave, the employer can receive a refundable credit for up to 80 hours for full-time employees. The credit is equal to the sick-leave paid the employee at his or her regular rate of pay up to a maximum of $511 a day and $5,110 in aggregate for a total of ten days.  For an employee who is caring for someone or for a son or daughter, the credit is equal to 2/3rds of the employee’s regular pay up to a maximum of $200 per day and $2,000 in the aggregate for 10 days.

In addition to the sick leave credit, if an employee cannot work because of the need to care for a child whose school or child care facility is closed or whose child-care provider is unavailable due to coronavirus, the employer can receive a refundable child care leave credit equal to 2/3rds of the employee’s regular pay, capped at $200 per day or $10,000 in the aggregate for a maximum of up to 10 weeks.  This is in addition to the sick-leave credit.  A business with  less than 50 employees are eligible for an exemption from this provision if the viability of the business is threatened.

Eligible employers are entitled to an additional tax credit based on the cost of health insurance for the employee during the leave period.

The employer can claim the credit by retaining an amount of payroll tax that would normally be paid to the IRS.  If the the payroll taxes are insufficient to cover the cost of qualified sick leave and child-care leave, the employer will be able to file a request for an accelerated payment from the IRS.  The IRS anticipates processing these requests in no more than two weeks.  Self-employed individuals are entitled to similar credits under similar circumstances that can be claimed on their income tax returns and will reduce estimated tax payments.

The tax credit is available for eligible paid sick and eligible paid child-care leave for the period March 18 through December 31, 2020.

Contact Avram Salkin at salking@taxlitigator.com or 310-281-3200.  Mr. Salkin is “The Tax Lawyer’s Tax Lawyer” and a founding member of the firm with more than 50 years of extensive experience in resolving complex Federal and state tax controversies and disputes, in structuring and negotiating complex transactional matters (including the acquisition and disposition of real estate and businesses), family wealth planning, estate planning and probate. Avram Salkin is a Certified Specialist in both Taxation and Estate Planning, Trust and Probate Law, by The State Bar of California Board of Legal Specialization.  Mr. Salkin is a recipient of the Joanne M. Garvey Award from the Taxation Section of the California Lawyers Association in recognition of his lifetime achievement and outstanding contributions in the field of tax law, and of the UCLA Bruce I. Hochman Award in recognition of his outstanding proficiency in tax law.  

Contact Robert S. Horwitz at horwitz@taxlitigator.com or 310.281.3200   Mr. Horwitz is a principal at Hochman Salkin Toscher Perez P.C., former Chair of the Taxation Section, California Lawyers’ Association, a Fellow of the American College of Tax Counsel, a former Assistant United States Attorney and a former Trial Attorney, United States Department of Justice Tax Division.  He represents clients throughout the United States and elsewhere involving federal and state administrative civil tax disputes and tax litigation as well as defending criminal tax investigations and prosecutions. Additional information is available at https://www.taxlitigator.com.