SimplyHR | Employment & Labor Blog 

Payroll credit for required paid sick leave: Employers are allowed a tax credit against payroll taxes (the employer’s portion of Social Security and Medicare taxes) equal to 100 percent of the “qualified sick leave wages” paid during the quarter. The term “qualified sick leave wages” means wages required to be paid by the Emergency Paid Sick Leave Act.

The credit is subject to various limitations. First, there is a limit on the wages per employee that may be taken into account, being $200 or $511 per day depending on circumstances. The days that can be taken into account are also generally limited to 10 per employee.

Credit increased for qualified health plan expenses: The payroll credit for required paid sick leave is increased by “qualified health plan expenses” allocable to the creditable qualified sick leave wages. Qualified health plan expenses are amounts the employer pays under a group health plan, which are excludible from employee gross income under the Internal Revenue Code.

Credit for sick leave for certain self-employed individuals: The tax credit is extended to certain self-employed individuals who would be entitled to paid sick leave under the Emergency Paid Sick Leave Act if they were employees. Their credit is determined under a qualified sick leave equivalent amount formula.

Payroll credit for required paid family leave: A payroll tax credit is also afforded employers for 100 percent of “qualified family leave wages,” which are wages required to be paid under the Emergency Family and Medical Leave Expansion Act.  There is a limit to creditable wages equal to $200 per day and $10,000 in the aggregate.

Rules increasing the credit by health plan expenses similar to the rules for qualified sick paid leave have been adopted.

Credit for family leave for certain self-employed individuals: The tax credit is extended to certain self-employed individuals who would be entitled to paid family leave under the Emergency Family and Medical Leave Expansion Act if they were employees. Their credit is determined under a qualified family leave equivalent amount formula.

Exemption from employer Social Security taxes: Paid leave under the Act is not considered wages for purposes of the employer’s portion of Social Security taxes.

No double benefit: So that the employer does not in effect receive both a tax deduction and a 100 percent tax credit for the same wages, the employer is deemed to receive additional income to wash out the deduction.

Refundable aspects of the credits: The credits are refundable to the extent they exceed the employer’s payroll tax liability.

Limitation in the case of receipt of other credit: Employers are not entitled to these credits if they claim the credit for paid family and medical leave under Code Section 45S.

Effective date: This credit applies from a date during the 15-day period beginning on the date of enactment to be determined and ending Dec. 31, 2020.

Our Employment & Labor Practice Group is continuing to monitor these developments and is available to answer your coronavirus questions.

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