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Coronavirus Paid Leave Act Offers Tax Incentives for Employers

March 25, 2020

By: Ferran ArimonAmanda Wilson 

On Wednesday, March 18, President Trump signed the Families First Coronavirus Response Act (the “Act”) into law. This law required certain employers with less than 500 employees to provide paid-leave benefits to employees affected by the COVID-19 emergency. A discussion of the relief provided to employees can be found here.

In addition to providing paid leave to certain employees, the Act also includes new tax credits and payroll-tax relief to those employers impacted to allow them to pay for the mandatory benefits. The Act also provides some tax relief for self-employed individuals. 

Tax Credits; Small employers – The Act allows impacted employers to collect a tax credit equal to 100% of qualified emergency sick-leave and family-leave payments made pursuant to the Act. Some skepticism remains as the credit will only cover payments made from a specified start date and ending on December 31, 2020. The start date has not yet been announced but will be within 15 days of the March 18 date the Act was signed into law. 

The new credits will first be used to offset the Social Security tax component of an employer’s federal payroll-tax bill with any excess credit being refundable via a government issued payment to employers. It should be noted that this credit it not available to employers already receiving credit for paid medical and family leave under I.R.C. §45S. 

FICA Relief - Qualified leave payments made to employees pursuant to the Act are now exempt from the 6.2% Social Security tax component of the employer’s federal payroll tax that is typically applied to wages. Employers are still required to pay the 1.45% Medicare tax, but are allowed to claim a credit for the outlay.  

Tax Credits; Self-employed - Self-employed individuals negatively affected by COVID-19 may claim a refundable credit against your federal income-tax bill, including the self-employment tax. If the credit exceeds your tax bill, the government will issue payments for the excess. The credit is equal to: 

  1. 100% of your sick-leave equivalent amount, plus
  2. 67% of the sick-leave equivalent for taking care of a family member (or child following closure of schools) 

For the purposes of this credit the “sick-leave equivalent” is equal to the lesser of: 

  1. Your daily self-employment income, or  
  2. $511 per day for up to 10 days to care for yourself - $200 per day for up to 10 days to care for a sick family member or your child following closure of schools.  

Additionally, as a self-employed individual, you can claim COVID-19 emergency family-leave credit for a maximum of 50 days. The credit amount will equal product of the number of qualified family-leave days and the lesser of $200 or your average daily self-employed income. These credit will be available from the start date through December 31, 2020. The start date has not yet been announced but will be within 15 days of the March 18 date the Act was signed into law.

We will continue to monitor the COVID-19 motivated financial relief and do our best to report updates as they become available.  

Be sure to visit our Taxing Times blog, as well as our Coronavirus (COVID-19) Response Team page, to keep up to date on the latest news.


This article is informational only. You should consult an attorney before acting or failing to act. The law may change rapidly and no warranty is given. LOWNDES DISCLAIMS ALL IMPLIED WARRANTIES AND WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. ALL ARTICLES ARE PROVIDED AS IS AND WITH ALL FAULTS. Consult a Lowndes attorney if you wish to establish an attorney/client relationship.
Ferran

Ferran Arimon focuses his legal practice on corporate and securities law, mergers and acquisitions and tax law.


A member of the firm’s Corporate Group, Ferran works with clients to structure financing transactions in compliance with federal and state securities laws and represents both public and private companies in mergers, acquisitions, capital raising, and corporate governance matters. Additionally, he counsels clients on a broad range of tax issues and business planning issues from entity selection and formation to dissolutions.

Amanda

A member of the firm’s tax practice, Amanda Wilson concentrates on federal tax planning and structuring. She represents clients in a wide variety of complex federal tax matters with a particular emphasis on pass-through entities such as partnerships, S corporations and real estate investment trusts. Specifically, Amanda focuses on advising clients on the formation, operation, acquisition and restructuring of such pass-through entities. In addition, she regularly advises clients on the structuring and operation of private equity funds, real estate funds and timber funds. Amanda is the author of the Bloomberg Tax Management Portfolio 718-3rd Edition, Partnerships- Disposition of Partnership Interests or Partnership Business; Partnership Termination.

Amanda regularly works in structuring deals to benefit from tax advantaged structures, including like-kind exchanges, new market tax credits, low income housing tax credits, and qualified opportunity zones. Amanda also has extensive experience in corporate planning and international tax matters, as well as federal tax controversy. Her practice before the Internal Revenue Service (IRS) includes providing advice on audits and appeals, drafting protests and ruling requests, and negotiating settlements.

Prior to joining the firm, Amanda worked for Sutherland Asbill & Brennan LLP (now Eversheds Sutherland), an Am Law 100 firm in the Atlanta office, where she was part of Sutherland’s Tax Practice Group. Amanda has also served as an adjunct professor at Emory University School of Law where she taught Partnership Taxation.

Amanda regularly contributes to the firm’s Taxing Times blog and is a regular panelist on tax webinars hosted by Strafford Publications.

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