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Tax Breaks

Tax Credits Included in Coronavirus Paid Leave Law

The Families First Coronavirus Response Act creates tax credits to help employers required to provide sick and family leave benefits and self-employed people who can't work because of the coronavirus.

A critical part of coronavirus (COVID-19) mitigation plans is making sure sick people stay home. But workers who are afraid of missing a paycheck might not take off work if they are ill. So, to alleviate that fear, the Families First Coronavirus Response Act, which President Trump signed on March 18, 2020, forces many employers to provide paid sick and family leave for workers affected by the virus. However, to shift most of the financial burden for paid leave off the employer's back, tax credits are also available to reimburse employers for some of the cost. Self-employed people who can't work because of the coronavirus get tax credits, too.

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The new law does not include a payroll tax cut, stimulus checks, or other tax relief provisions. However, Congress and the Trump administration are already working on another coronavirus stimulus bill that could include additional tax law changes. We'll be keeping a close eye on any subsequent legislation or other coronavirus-related tax news. So, stay tuned and check back frequently for more information. For now, though, here are the basics on the paid leave benefits and related tax credits found in the new law.

Paid Leave Benefits

The Families First Coronavirus Response Act requires private employers with fewer than 500 workers and all public employers to provide paid sick leave to employees affected by the coronavirus (exceptions for health care providers, emergency responders and certain small businesses are allowed). Full-time workers get up to 80 hours of sick leave, while part-time workers get sick leave for the average number of hours they work over a two-week period. A worker is only able to take paid leave if he or she is:

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  • Subject to a federal, state or local coronavirus quarantine or isolation order;
  • Advised by a health care provider to self-quarantine due to coronavirus concerns;
  • Experiencing coronavirus symptoms and seeking a medical diagnosis;
  • Caring for someone else who is subject to a coronavirus-related federal, state or local quarantine or isolation order, or who has been advised by a health care provider to self-quarantine due to coronavirus-related concerns;
  • Caring for a son or daughter if the child's school or daycare has been closed, or the child's care provider is unavailable, due to coronavirus precautions; or
  • Experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.

Workers who are sick or quarantined get full pay while on coronavirus leave, up to $511 per day ($5,110 in total). Workers caring for another person or on leave because of an HHS-specified condition get two-thirds of their normal pay while on leave, up to $200 per day ($2,000 in total).

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The new law also extends the existing Family and Medical Leave Act (FMLA) to cover a worker's absence (including an inability to telework) to care for a minor son or daughter if the child's school or daycare has been closed, or the child's care provider is unavailable, because of the coronavirus.

Workers receive two-thirds of their regular salary while on coronavirus-related FMLA leave, but compensation is capped at $200 per day and $10,000 in total. However, this leave does not kick in until after 10 days. (During that time, workers are presumably able to take sick leave as described above.)

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The expanded FMLA provisions apply to employers with fewer than 500 employees, but not to certain health care providers and emergency responders. Exemptions are also available for small businesses with fewer than 50 employees if the new requirements jeopardize the business's viability.

Any wages paid as coronavirus sick or family leave aren't subject to Social Security (or Railroad Retirement) payroll taxes paid by employers.

Tax Credits for Employers

While employers initially have to foot the bill for the new sick and family leave benefits, at least some of the costs are paid back through refundable tax credits against the 6.2% Social Security (or Railroad Retirement) payroll tax imposed on employers. The credits are, however, subject to certain restrictions and limitations.

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For the new sick leave benefits, the credit is limited to $511 per day for workers taking leave because they are sick or quarantined. The limit is $200 per day for workers taking leave to care for another person or on leave because of an HHS-specified condition. The credit is further reduced by a 10-sick-days-per-worker limit.

For the expanded FMLA benefits, the credit is limited to $200 per day, per employee. The credit also can't exceed $10,000 in total for any worker.

Employers are also given additional payroll tax credits for group health plan costs for, and the 1.45% Medicare payroll tax on wages paid to, workers on coronavirus sick or family leave.

Tax Credits for Self-Employed

Self-employed people are not left out in the cold. They receive refundable tax credits against the self-employment tax that are similar to those allowed for employers.

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The sick leave credit is based on a self-employed person's "qualified sick leave equivalent amount." That amount is equal to (1) up to 10 days during the year that the person can't work for a reason that would entitle them to coronavirus-related sick leave if he or she were an employee, (2) multiplied by the lesser of:

  • $511 per day for people who are sick or quarantined, or $200 per day for people caring for another person or on leave because of an HHS-specified condition; or
  • 100% of a sick or quarantined person's average daily self-employment income for the year, or 67% of the average daily self-employment income for a person caring for another person or on leave because of an HHS-specified condition.

A self-employment tax credit is also be available for 100% of a person's "qualified family leave equivalent amount." That amount is equal to (1) up to 50 days during the year that the person can't work for a reason that would entitle them to coronavirus-related family leave if he or she were an employee, (2) multiplied by the lesser of:

  • $200; or
  • 67% of the person's average daily self-employment income for the year.
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