Skip to Main Content

insightsarticles

Highlights of the recently passed paid sick and family leave act: What you need to know

03.20.20

The President signed The Families First Coronavirus Response Act (hereinafter the “Act”) into law on March 18th and the provisions are effective April 2nd. You can read the congressional summary here. There are two provisions of the Act that deal with paid leave provisions for employees. Here are some highlights for employers.

The provisions of the Act are only required for employers with fewer than 500 employees. Employers with over 499 employees are not required to provide the sick/family leave contained in the Act, but could voluntarily elect to follow the new rules. The expectation is that employers with over 499 employees are providing some level of sick/family leave benefits already. In any case, employers with over 499 employees are not eligible for the tax credits. 

Employers with fewer than 500 employees are required to provide employees with up to 80 hours of paid sick leave over a two-week period if the employee:

  • Self-isolates because of a diagnosis with COVID-19, or to comply with a recommendation or order to quarantine;
  • Obtains a medical diagnosis or care if the employee is experiencing COVID-19 symptoms;
  • Needs to care for a family member who is self-isolating due to a COVID-19 diagnosis or quarantining due to COVID-19 symptoms; or
  • Is caring for a child whose school has closed, or childcare provider is unavailable, due to COVID-19.

These rules apply to all employees regardless of the length of time they have worked for the employer. The 80-hours would be pro-rated for those employees who do not normally work a 40-hour week. 

Employees who take leave because they themselves are sick (i.e., the first two bullets above) can receive up to $511 per day, with an aggregate limit of $5,110. If, on the other hand, an employee takes leave to care for a child or other family member (i.e., the last two bullets above), the employee will be paid two-thirds (2/3) of their regular weekly wages up to a maximum of $200 per day, with an aggregate limit of $2,000.

Days when an individual receives pay from their employer (regular wages, sick pay, or other paid time off) or unemployment compensation do not count as leave days for the purposes of this benefit.

Family and Medical Leave Act

Employees who have been employed for at least 30-days also have the right to take up to 12 weeks of job-protected leave under the Family and Medical Leave Act (FMLA). The Act requires that 10 of these 12 weeks (i.e., after the sick leave discussed above is taken) be paid at a rate of no less than two-thirds of the employee’s usual rate of pay. Any leave taken under this portion of the ACT will be limited to $200 per day with an aggregate limit of $10,000.

Exemptions

The Secretary of Labor has the authority to issue regulations exempting: (1) certain healthcare providers and emergency responders from taking leave under the Act; and (2) small businesses with fewer than 50 employees from the requirements of the Act if it would jeopardize the viability of the business.

Expiration

The provisions of the Act are set to expire on December 31, 2020, and unused time will not carry over from one year to the next.

Tax credits 

The Act provides for refundable tax credits to help an employer cover the costs associated with providing paid emergency sick leave or paid FMLA. The tax credits work as follows:

  • A refundable tax credit for employers equal to 100 percent of qualified family leave wages paid under the Act.
  • A refundable tax credit for employers equal to 100 percent of qualified paid sick leave wages paid under the Act. 
  • The tax credits are taken on Form 941 – Employer’s Quarterly Federal Income Tax Return filed for the calendar quarter when the leave is taken and reduce the employer’s portion of the Social Security taxes due. If the credit exceeds the employer’s total liability for Social Security taxes for all employees for any calendar quarter, the excess credit is refundable to the employer.

For more information

We are here to help. Please contact our benefit plan consultants if you have any questions or would like to discuss your specific situation. 

Related Services

Related Professionals

Principals

Read this if you are not familiar with the expansion of eligibility for employee retention credits (ERC).

Are you familiar with the IRS’ recent additional, taxpayer-friendly guidance that provides some clarity in claiming the employee retention credit (ERC)? 

Employee Retention Credits in the CARES Act: Background

Congress originally enacted the ERC in the CARES Act in March of 2020 to encourage employers to hire and retain employees during the pandemic. At that time, the ERC applied to wages paid after March 12, 2020 and before January 1, 2021. However, Congress later modified and extended the ERC to apply to wages paid before July 1, 2021. Then with the American Rescue Plan Act (ARPA) signed into law on March 11, 2021, the ERC was modified to apply to wages paid through December 31, 2021. The recently passed infrastructure bill eliminates the ERC the quarter ending December 31, 2021.

The rules are complex but there may be some limited ability for your organization to benefit, based on some late changes to the rules. Originally, taxpayers who received PPP loans were not eligible, but the rules changed and now provide that employers who received PPP loans may qualify for the ERC with respect to wages that were not paid for with proceeds from a forgiven PPP loan. This change is retroactive to March 12, 2020. 

The ERC is a refundable payroll tax credit for wages paid and health coverage provided by an employer whose operations were either fully or partially suspended due to COVID-related governmental order or that experienced a significant reduction in gross receipts.  

Regarding the reduction in gross receipts, for any quarter in 2020, a greater than 50% reduction in gross receipts is required during the calendar quarter compared to the same quarter of 2019 in order to qualify. For 2021, the eligibility threshold for employers is reduced from a greater than 50% to a greater than 20% decline in gross receipts for the same quarter of 2019 in order to qualify for the ERC for any quarter. There is an alternative quarter election for 2021 that allows employers to use prior quarter gross receipts compared to the same quarter for 2019 to determine eligibility. For example, for the first calendar quarter of 2021, an employer may elect to use its gross receipts for the fourth quarter of 2020 compared to those for the fourth calendar quarter of 2019 to determine if the decline in gross receipts test is met.

The IRS recently clarified that in determining gross receipts an employer does not need to include forgiven PPP loans, shuttered venue operator grants, or restaurant revitalization grants as gross receipts. Gross receipts for exempt organizations are calculated in the same manner as gross receipts on page 1 of Form 990 in Box G, which includes proceeds from the sales of investments as well as all contribution, program and investment revenue.

The amount of the credit can be substantial. For 2020, the credit is 50% of the first $10,000 of qualified wages per employee for the qualifying period beginning as early as March 12, 2020 and ending December 31, 2020 (thus the max credit per employee is $5,000 in 2020). For 2021, the credit is 70% of the first $10,000 of qualified wages per employee, per qualifying quarter (thus the potential max credit is $21,000 per employee in 2021).  

For 2021, employers with 500 or fewer full-time employees in 2019 may include all wages and health plan expenses as qualified wages. For 2020, employers with 100 or fewer full-time employees in 2019 may include all wages and health plan expenses as qualified wages while employers with more than 100 full-time employees in 2019 may only claim the credit for qualified wages paid to employees who did not provide services. For purposes of determining full-time employees, an employer only needs to include those that work 30 hours a week or 130 hours a month in the calculation. Part-time employees working less than this would not be considered in the employee count.

There is additional interplay between claiming the ERC and the wages used for PPP loan forgiveness that will need to be considered.  

What should you do now? 

It makes sense to determine your eligibility for the ERC. We recommend that you compile your business gross receipts by calendar quarter for 2019, 2020, and the first three quarters of 2021. Let us know if you want a template to do this. We can then help you evaluate whether you have any quarters where you might qualify for the ERC.  

Keep in mind that if your business operations were either fully or partially suspended due to a COVID-related government order then you will likely already qualify for that quarter but the eligible wages will only be for the wages paid during the shutdown period.  

Please let us know if you have any questions or need any assistance.

Article
CARES Act: Eligibility for employee retention credits

Read this if you paid wages for qualified sick and family leave in 2021.

The IRS has issued guidance to employers on year-end reporting for sick and family leave wages that were paid in 2021 to eligible employees under recent federal legislation.

IRS Notice 2021-53, issued on September 7, 2021, provides that employers must report “qualified leave wages” either on a 2021 Form W-2 or on a separate statement, including:

  • Qualified leave wages paid from January 1, 2021 through March 31, 2021 (Q1) under the Families First Coronavirus Response Act (FFCRA), as amended by the Consolidated Appropriations Act, 2021 (CAA).
  • Qualified leave wages paid from April 1, 2021 through September 30, 2021 (Q2 and Q3) under the American Rescue Plan Act of 2021 (ARPA).

The notice also explains how employees who are also self-employed should report such paid leave. This guidance builds on IRS Notice 2020-54, issued in July 2020, which explained the reporting requirements for 2020 qualified leave wages.

Employers should work with their IT department and/or payroll service provider as soon as possible to review the payroll system, earnings codes configuration and W-2 mapping to ensure that these paid leave wages are captured timely and accurately for year-end W-2 reporting.

FFCRA and ARPA tax credits background

In March 2020, the FFCRA imposed a federal mandate requiring eligible employers to provide paid sick and family leave from April 1, 2020 to December 31, 2020, up to specified limits, to employees unable to work due to certain COVID-related circumstances. The FFCRA provided fully refundable tax credits to cover the cost of the mandatory leave.

In December 2020, the CAA extended the FFCRA tax credits through March 31, 2021, for paid leave that would have met the FFCRA requirements (except that the leave was optional, not mandatory). The ARPA further extended the credits for paid leave through September 30, 2021, if the leave would have met the FFCRA requirements.

In addition to employer tax credits, under the CAA, a self-employed individual may claim refundable qualified sick and family leave equivalent credits if the individual was unable to work during Q1 due to certain COVID-related circumstances. The ARPA extended the availability of the credits for self-employed individuals through September 30, 2021. However, an eligible self-employed individual may have to reduce the qualified leave equivalent credits by some (or all) of the qualified leave wages the individual received as an employee from an employer.

Reporting requirements to claim the refundable tax credits

Eligible employers who claim the refundable tax credits under the FFCRA or ARPA must separately report qualified sick and family leave wages to their employees. Employers who forgo claiming such credits are not subject to the reporting requirements.

Qualified leave wages paid in 2021 under the FFCRA and ARPA must be reported in Box 1 of the employee’s 2021 Form W-2. Qualified leave wages that are Social Security wages or Medicare wages must be included in boxes 3 and 5, respectively. To the extent the qualified leave wages are compensation subject to the Railroad Retirement Tax Act (RRTA), they must also be included in box 14 under the appropriate RRTA reporting labels.

In addition, employers must report to the employee the following types and amounts of wages that were paid, with each amount separately reported either in box 14 of the 2021 Form W-2 or on a separate statement:

  • The total amount of qualified sick leave wages paid for reasons described in paragraphs (1), (2), or (3) of Section 5102(a) of the Emergency Paid Sick Leave Act (EPSLA)1  with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021. The following, or similar language, must be used to label this amount: “Sick leave wages subject to the $511 per day limit paid for leave taken after December 31, 2020, and before April 1, 2021.”
  • The total amount of qualified sick leave wages paid for reasons described in paragraphs (4), (5), or (6) of Section 5102(a) of the EPSLA with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021. The following, or similar language, must be used to label this amount: “Sick leave wages subject to the $200 per day limit paid for leave taken after December 31, 2020, and before April 1, 2021.”
  • The total amount of qualified family leave wages paid to the employee under the Emergency Family and Medical Leave Expansion Act (EFMLEA) with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021. The following, or similar language, must be used to label this amount: “Emergency family leave wages paid for leave taken after December 31, 2020, and before April 1, 2021.”
  • The total amount of qualified sick leave wages paid for reasons described in paragraphs (1), (2), or (3) of Section 5102(a) of the EPSLA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021. The following, or similar language, must be used to label this amount: “Sick leave wages subject to the $511 per day limit paid for leave taken after March 31, 2021, and before October 1, 2021.”
  • The total amount of qualified sick leave wages paid for reasons described in paragraphs (4), (5), and (6) of Section 5102(a) of the EPSLA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021. The following, or similar language, must be used to label this amount: “Sick leave wages subject to the $200 per day limit paid for leave taken after March 31, 2021, and before October 1, 2021.”
  • The total amount of qualified family leave wages paid to the employee under the EFMLEA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021. The following, or similar language, must be used to label this amount: Emergency family leave wages paid for leave taken after March 31, 2021, and before October 1, 2021.”

If an employer chooses to provide a separate statement and the employee receives a paper 2021 Form W-2, then the statement must be included with the Form W-2 sent to the employee. If the employee receives an electronic 2021 Form W-2, then the statement must be provided in the same manner and at the same time as the Form W-2.

In addition to the above required information, the notice also suggests that employers provide additional information about qualified sick and family leave wages that explains that these wages may limit the amount of the qualified sick leave equivalent or qualified family leave equivalent credits to which the employee may be entitled with respect to any self-employment income.

For more information

If you have more questions, or have a specific question about your particular situation, please call us. We’re here to help.

 1Employees are eligible for qualified sick leave under EPSLA if the employee:

  • Was subject to a federal, state or local quarantine or isolation order related to COVID-19;
  • Had been advised by a health-care provider to self-quarantine due to concerns related to COVID-19;
  • Experienced symptoms of COVID-19 and was seeking a medical diagnosis;
  • Was caring for an individual who was subject to a quarantine order related to COVID-19, or had been advised by a health-care provider to self-quarantine due to concerns related to COVID-19;
  • Was caring for a son or daughter of such employee, if the school or place of care of the son or daughter had been closed, or the child-care provider of such son or daughter was unavailable, due to COVID-19; or
  • Was experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.

Article
IRS guidance to employers: Year-end reporting requirements for qualified sick and family leave wages

Read this if you are an employer looking for more information on the Employee Retention Credit.

The IRS recently released Notice 2021-49, providing updated guidance on the ERC. Here are a few of the more important points from the Notice.

Timing of qualified wages deduction disallowance. The general rule is an employer's deduction for qualified wages, including qualified health plan expenses, is reduced by the amount of the employee retention credit. The new guidance indicates an employer should file an amended federal income tax return or administrative adjustment request (AAR), if applicable, for the taxable year in which the qualified wages were paid or incurred to correct any overstated deduction taken with respect to those same wages on the original federal tax return.

This means that an employer who filed an amended Form 941 in 2021 to claim the ERC for 2020 would be required to file an amended 2020 tax form to correct an overstated deduction for the credit amount if the wage/health plan deductions on the originally filed tax return for 2020 were not reduced by the amount of the credit.

Wages of majority owners and spouses. If the majority owner (owns more than 50%) of a corporation has no brother or sister (whether by whole or half blood), ancestor, or lineal descendant then neither the majority owner nor the spouse is a related individual and the wages paid to the majority owner and/or the spouse are qualified wages for purposes of the ERC, assuming the other requirements for qualified wages are satisfied. In most cases, the wages of a majority owner and spouse will not be considered qualified wages. The Notice provides a number of examples to clarify this issue, including an example where wages of a majority owner or spouse may not be treated as qualified wages.

Calculation of fulltime employees. For purposes of determining whether an eligible employer is a large eligible employer (i.e., more than 100 in 2019 for 2020 or more than 500 in 2019 for 2021) or a small eligible employer, eligible employers are not required to include fulltime equivalents when determining the average number of full-time employees. This is great news for employers with a large part-time or variable hour employee workforce.

One final note
It appears the infrastructure bill that just passed in the US Senate would eliminate the ERC for the fourth quarter of 2021. If this provision holds, it would limit the total ERC that could be claimed for 2021.

For more information

If you have more questions, or have a specific question about your particular situation, please call us. We’re here to help.

Article
Updated guidance on the Employee Retention Credit (ERC): Important considerations for employers