IRS RELEASES GUIDANCE REGARDING TAX CREDIT AND RELATED ISSUES UNDER THE FAMILIES FIRST CORONAVIRUS RESPONSE ACT

On March 18, 2020, the President signed the Families First Coronavirus Response Act (FFCRA) into law, to provide relief to employees adversely affected by the 2019 novel coronavirus (COVID-19) pandemic. The law, which applies to private employers with fewer than 500 employees and certain public employers, provides, among other things, paid leave for certain employees affected by COVID-19. FOX, O’NEILL & SHANNON, S.C. CLIENT ALERT—THE FAMILIES FIRST CORONAVIRUS RESPONSE ACT (H.R. 6201). CLICK HERE to read a detailed discussion of FFCRA.

The FFCRA provides that employers may obtain tax credits for providing paid leave. To effectuate these credits, the Internal Revenue Service (IRS) has announced that employers subject to the FFCRA may be able to obtain two new refundable payroll tax credits. These credits will reduce the amounts employers may otherwise be required to deposit on a quarterly basis with the IRS.

The payroll tax credits are intended to quickly reimburse employers, on a dollar-for-dollar basis, for the cost of providing COVID-19-related leave to their employees. Credits will be available to eligible employers based on qualifying leave provided between FFCRA’s effective date, April 1, 2020, and December 31, 2020.

This announcement is the first in an anticipated series of announcements by the IRS regarding the implementation of FFCRA. Additional details and clarifications are expected in these anticipated announcements.

Under this first IRS announcement, the refundable tax credits offset are equal to 100% of the “qualifying” paid leave wages paid by the employer, up to a maximum amount under FFCRA which depends on the type of leave at issue (sick leave, child care leave).

Payroll taxes against which a credit may offset 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.”

If payroll taxes do not cover the cost of qualified sick and child care leave paid, employers will be able to request an accelerated payment from the IRS. The IRS will attempt to process these requests within two weeks.

The FFCRA also provides for an increase in the tax credits associated with “qualified health plan expenses” related to paid leave.

The IRS announcement states that the Department of Labor (DOL) will be issuing a temporary non-enforcement policy that provides a 30-day period for employers to “come into compliance” with the FFCRA. Under this policy, the DOL will not bring an enforcement action against any employer for FFCRA violations so long as the employer has acted reasonably and in good faith to comply.

Under the FFCRA, small businesses with fewer than 50 employees will be eligible for an exemption from FFCRA’s leave requirements relating to school closings or child care unavailability where the requirements would jeopardize the ability of the business to continue. The IRS announcement indicates that the DOL intends to provide emergency guidance and rulemaking to make the exemption on the basis of simple and clear criteria.

Many procedural and related issues remain to be worked out regarding payroll taxes and credits under the FFCRA. FOS is monitoring IRS releases and related information for additional guidance. In the meantime, FOS is here to discuss with you when and how to take advantage of potential tax credits under, or how to ensure you business’ compliance with, FFCRA. Please call us with any questions you may have regarding FFCRA, COVID-19, or any other legal issue.

Be well.

FOX, O’NEILL, & SHANNON, S.C.