Employer Payroll Tax Credits – March 20, 2020

Summary of Employer Payroll Tax Credits

The Families First Coronavirus Response Act (H.R. 6201) (“Coronavirus Act”) was signed into legislation on March 18, 2020.  Under the Coronavirus Act, employers are eligible for payroll tax credits in connection with providing paid leave to their employees. Specifically, the employer portion of Social Security tax may be reduced by: 1) the amount of paid sick leave related to COVID-19 provided to employees and 2) the amount of paid public health emergency leave provided to employees under the amended Family and Medical Leave Act.

Employer Payroll Tax Credits

On March 18, 2020, The Families First Coronavirus Response Act (H.R. 6201) (“Coronavirus Act”) was signed into legislation.  Under the Coronavirus Act, employers are eligible for payroll tax credits in connection with providing paid leave to their employees. Specifically, the employer portion of Social Security tax may be reduced by: 1) the amount of paid sick leave related to COVID-19 provided to employees and 2) the amount of paid public health emergency leave provided to employees under the amended Family and Medical Leave Act (“FMLA”).

For payments made under paid sick leave, an employer may obtain a maximum quarterly credit related to COVID-19 in the amount of 10 days of payments paid for this leave subtracted by the payments for the number of days of such paid leave taken in previous quarters.  If the amount of the credit based on payments of paid sick leave to all employees for a quarter would exceed the amount of the employer’s portion of Social Security tax due for the quarter, the employer could have the excess treated as a refundable over-payment.

For payments made under the public health emergency leave, the amount of the credit is limited to $200 per day per-employee and up to $10,000 in the aggregate. If the amount of the credit based on payments of paid public health emergency leave for a quarter would exceed the amount of the employer’s portion of Social Security tax due for the quarter, the employer could have the excess treated as a refundable overpayment.

Although these payments cannot be credited against Medicare tax, the amount of the credit of Social Security tax for these types of payments can be increased by the amount of the employer portion of Medicare tax due on payments of paid sick leave related to COVID-19 and payments regarding paid public health emergency leave.

These credits may also can be increased by the amount of the employer’s qualified health plan expenses for employees receiving this paid sick leave, helping employers maintain health coverage for these employees.

It is important to note that payments for paid sick leave related to COVID-19 and paid public health emergency leave under the amended FMLA are themselves not subject to the employer portion of Social Security tax.

***

This alert is made available for educational purposes and to provide general information on current legal topics, not to provide specific legal advice. The publication of this alert does not create any attorney-client relationship and should not be used as a substitute for competent legal advice from a licensed professional attorney.

Please feel free to reach out to any attorney in our Business Transactions and Tax Practice Group with any questions.