The Families First Coronavirus Response Act (FFCRA or the Act) provides federal tax credits for paid sick leave and family leave required by the Act for employers with 500 or fewer employees. Let’s dive into the specifics below:
An employer who pays for “qualified family leave wages” to employees who cannot work due to difficulties related to the Covid-19 pandemic. Payments are “qualified” if an employee is unable to work for any of the following reasons:
The available tax credit is equal to all the qualified payments made, limited to:
The employer tax credits can be claimed quarterly and are only allowable against employer payroll taxes, such as an employer’s share of Social Security and Medicare taxes. If the amount of the credit exceeds the employer’s payroll tax liability for a quarter, the employer can treat the excess as an overpayment and claim a refund. Credits claimed by an employer are includable in an employer’s gross income. So, if an employer claims $10,000 of credits has $10,000 of gross income will be able to claim an offsetting deduction for the payment.
The Act also provides that self-employed people can claim similar tax credits. Self-employed individuals who care for themselves under scenarios 1, 2, and 3 above, can calculate the amount of tax credits they are entitled to by multiplying the number of days that they will be unable to work (max. 10 days) by the lesser of (a) 67% of the taxpayer’s average daily income or (b) $511.
If a self-employed individual is caring for someone described under scenarios 4, 5, or 6, the amount of available tax credit is calculated by multiplying the number of days they are unable to work due to providing care (max. 50 days) by the lesser of a) 67% of the taxpayer’s average daily income or (b) $511.
Qualified family leave payments will not be counted as “wages” to employees, and employees who receive such payments will not have to pay payroll taxes on the payments (i.e., Social Security or Medicare).
The credits and exclusions will be available until December 31, 2020.
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