Tax credits related to COVID-19 for small businesses

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**UPDATE** The Consolidated Appropriations Act, 2021, H.R. 133 was signed into law on December 27th. Among many tax provisions, the bill also extends the refundable payroll tax credits for paid sick and family leave voluntarily provided by employers through the end of March 2021. (It was previously set to end 12/31/2020). However, the Act did not extend employees’ entitlement to FFCRA leave beyond December 31, 2020, meaning employers will no longer be legally required to provide such leave.

The Families First Coronavirus Response Act (FFCRA or Act) requires certain employers to provide employees with paid sick leave or expanded family and medical leave related to COVID-19, and reimburse the employers, via refundable tax credits, dollar-for-dollar, for the cost of providing paid sick and family leave wages to the employees.

There are 3 different types of credit:

• Employee Sick Leave – unable to work (including telework) because of Coronavirus quarantine, self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis. The credit is at the employee’s regular rate of pay, up to $511 per day and $5,110 in total up to 80 hours. The employer is also eligible for credits for qualified health plan expenses for the employee and the employer’s portion of Medicare tax expenses related to the qualified wages.
• Care Sick Leave – unable to work due to caring for someone with Coronavirus or caring for a child because the child’s school or place of care is closed, or the paid childcare provider is unavailable due to the Coronavirus. The credit is at 2/3 of the employee’s regular rate of pay, up to $200 per day and $2,000 in total, for up to 80 hours. The employer is also eligible for credits for qualified health plan expenses for the employee and the employer’s portion of Medicare tax related to the qualified wages.
• Expanded Family and Medical Leave – Up to an additional 10 weeks at 2/3 of the employee’s regular pay, up to $200 per day and $10,000 in total where an employee, who has been employed for at least 30 calendar days, is unable to work due to a bona fide need for leave to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.

How will employers receive the credit?
Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Compiled by Dao CPA PC Staff from IRS and DOL publications