Under the Families First Coronavirus Response Act (Act) (H.R. 6201), employees (and the self-employed) can claim refundable federal tax credits to recover 100% of any COVID-19 related sick leave payments but confusion continues on how and when exactly employers recoup that loss.
The IRS says employers can subtract the cost of the sick time (plus cost of health plan during leave) from payroll taxes due the IRS. This way employers are promptly refunded the cost. Employers can deduct the cost of providing leave from federal income taxes withheld from all employees’ pay, employees’ Social Security and Medicare taxes, employer’s Social Security and Medicare taxes.
The self-employed can deduct their tax credits from estimated tax payments or claim a refund on their federal income tax return.
The idea behind the tax credit is give companies more operational cash. Money usually sent to the IRS can now be used to pay mandated sick time. If the credit doesn’t cover all the sick time expenses, employers can request a refund of their tax credit for the balance. The IRS says it will process such refunds within two weeks.
Small businesses (less than 50 employees) may be exempt from the mandatory paid sick leave. The U.S. Department of Labor is expected to issue guidance on applying for exemption soon.
For more information and resources on COVID-19, see our coronavirus page. Feel free to contact your Henry+Horne tax adviser with any questions on tax credits you can claim for COVID-19 related sick leave.