Payroll tax credits to fund paid leave for employees affected by coronavirus

The Families First Coronavirus Response Act (FFCRA), which was enacted on March 18, established two new categories of paid leave to assist workers needing time off for certain coronavirus-related purposes: (1) up to two weeks of paid sick leave and (2) up to 10 weeks of paid Family and Medical Leave Act (FMLA) leave. The mandates apply to private-sector employers with fewer than 500 employees and public-sector employers of any size. Read on to learn how the emergency leave program will be funded and implemented.

Which employers are covered?

Although the FFCRA requires covered employers to provide the new types of paid leave to qualifying employees, it establishes a process for eligible employers to obtain reimbursement from the federal government through refundable credits against their Social Security payroll taxes. Here is how the coverage works:

• The tax credit is available to all private-sector employers subject to the FFCRA's paid leave mandates, regardless of the type of entity (C corporation, S corporation, partnership, LLC, or sole proprietorship).
• Public-sector employers are expressly excluded from eligibility for the tax credit, although they are subject to the paid leave mandates.
• Private-sector employers with 500 or more employees also aren't eligible for the credit, even if they voluntarily provide paid leave mirroring the FFCRA's requirements.

How tax credit is calculated