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Nelson Mullins COVID-19 Resources

Nelson Mullins is continuing to monitor developments related to COVID-19, including guidance from the Centers for Disease Control and various federal, state, and local government authorities. The firm is taking appropriate precautionary actions and has implemented plans to ensure the continuation of all firm services to clients from both in office and remote work arrangements across our 25 offices. 

In addition, click the link below to access extensive resources to address a wide variety of topics resulting from the virus, in general and by industry,  including topics such as essential businesses, force majeure, business interruption insurance, CARES Act and FFCRA, and others. 

Nelson Mullins COVID-19 Resources

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Tax Reports

March 23, 2020

Employer Tax Credits Available Under The Families First Act

By Susan E. Stoffer, Ann E. Murray, C. Wells Hall, III, Drew Hermiller, Chip Gray

The “Families First Coronavirus Response Act” (HR 6201), (the “Act”) signed into law by President Trump on March 18, 2020, mandates paid emergency sick leave and paid emergency family leave for certain employees affected by the COVID-19 coronavirus (the “Paid Leave Mandate”). The Act also provides dollar for dollar refundable tax credits (the “Credits”) to employers to facilitate payments under the Paid Leave Mandate. Below is a summary of the Paid Leave Mandate and the Credits.

Which Businesses are Required to Provide Paid Sick Leave?

Private employers with fewer than 500 employees, and all governmental employers, are required to provide up to 10 days of paid sick leave to employees who are unable to work (or telework) pursuant to one of the following six circumstances:

  1. The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
  2. The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  3. The employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis;
  4. The employee is caring for an individual who is subject to an isolation order or is a quarantined employee;
  5. The employee is caring for a son or daughter if the son or daughter’s school or place of care has been closed, or the son or daughter’s child care provider is unavailable due to COVID-19 precautions; or
  6. The employee is experiencing any other substantially similar condition as specified by the Secretary of Health and Human Services.

Employers of employees who are health care providers or emergency responders may elect out of the paid sick leave mandate for such employees.

The Act authorized the Department of Labor, in its discretion, to allow small businesses with fewer than 50 employees to claim an exemption where compliance with the requirements would jeopardize the ability of the business to continue as a going concern. While the Department of Labor is expected to issue emergency guidance this week, it is currently unclear whether that guidance will include such an exemption with respect to emergency sick leave. Employers wishing to take advantage of possible exemptions should stay alert for further guidance.

How Much Sick Leave is Required to be Paid to Employees?

Paid sick leave wages are based on which one of the above-mentioned categories of eligibility circumstances an employee falls into:

  • For employees who fall into categories 1-3 (“Personal Eligibility”), the mandated paid sick leave is generally based on the employee’s regular rate of pay (determined in accordance with the FLSA) and the number of hours the employee would otherwise be scheduled to work, up to a cap of $511 per day ($5,110 in the aggregate).
  • For employees who fall into categories 4 or 5 (“Care Eligibility”) or 6 (“Catch-All Eligibility”), the mandated paid sick leave is generally based on two-thirds (2/3) of the employee’s regular rate of pay (determined in accordance with the FLSA) and the number of hours the employee would otherwise be scheduled to work, up to a cap of $200 per day ($2,000 in the aggregate).

A variety of special rules apply in calculating the rate of pay and number of hours.

Which Businesses are Required to Provide Paid Family Leave?

Private employers with fewer than 500 employees, and certain public employers, are required to provide up to 12 weeks of family leave (the first two weeks are unpaid) to employees who are unable to work (or telework) pursuant to the following circumstance:

  • The employee is caring for a son or daughter if the son or daughter’s school or place of care has been closed, or the son or daughter’s child care provider is unavailable due to COVID-19 precautions.

Similar health care provider and emergency responder exemptions exist as are available for paid sick leave.

In guidance issued on March 20th, the Department of Labor indicated its intent to issue emergency guidance this week that will allow small businesses with fewer than 50 employees to claim exemption where the paid family leave requirements would jeopardize the ability of the business to continue as a going concern.

How Much Family Leave is Required to be Paid to Employees?

Paid family leave wages are required to be two-thirds of an employee’s regular rate of pay (determined in accordance with the FLSA) based on the number of hours the employee would otherwise be scheduled to work, up to a cap of $200 per day ($10,000 in the aggregate).

  • The first two weeks of the leave are unpaid (so that there is no duplication of the paid emergency sick leave) and then the Paid Leave Mandate applies for up to ten (10) weeks.

A variety of special rules apply in calculating the rate of pay and number of hours.

For more details on emergency family leave and emergency sick leave, see the Employer’s Quick Guide to the Families First Coronavirus Response Act.

How Much Reimbursement is Available to Employers via the Credits?

Amounts required to be paid by an employer under the Paid Leave Mandate for each calendar quarter are eligible for dollar-for-dollar credit against federal employment taxes. 

  • The formula for computing the Credits tracks, dollar-for-dollar, the amount of compensation actually paid to eligible employees for mandated emergency sick leave or emergency family leave, as applicable.
  • Credits only apply with respect to wages paid under the Paid Leave Mandate from April 1, 2020 to December 31, 2020.
  • Credits are fully refundable. In other words, if the employee and employer portion of Social Security and Medicare, and the amounts withheld for federal income taxes, is smaller than the wages paid to eligible employees because of the Paid Leave Mandate, the excess credit will be treated as an overpayment of employment taxes. The Treasury Department has indicated that where a refund is owed, the IRS will send the refund as quickly as possible.
  • An employer may elect to not have the Credit apply. 
  • No deduction is allowed for the amount of the Credits.
  • No Credits are permitted with respect to wages for which a credit is allowed under Code Section 45S, which provides a separate tax credit for certain paid family and medical leave.
  • The amount of Credits is increased by the employer’s “qualified health plan expenses” that are allocable to the Paid Leave Mandate. “Qualified health plan expenses” means amounts paid or incurred by an employer to provide and maintain a group health plan, but only to the extent such amounts are excludible from the gross income of the employees. Such expenses would presumably include the employer share of premiums, but it is not clear what additional plan expenses may be counted. Given the caps on the Paid Leave Mandate, it may not matter. Regulations are to be issued by the IRS prescribing the method for allocating plan expenses to qualified wages under the Paid Leave Mandate. Until employers receive such guidance, allocation may be made on a pro rata basis among covered employees and pro rata on the basis of periods of coverage.

How Are the Credits Applied?

  • While the Credits will be formally reconciled on the employer’s quarterly Form 941 (the form used to report income and employment taxes withheld from employee wages and an employer’s portion of employment taxes), the IRS has announced that it will issue emergency guidance this week allowing employers to take immediate advantage of the Credits by retaining funds that they would otherwise pay each pay period to the IRS in payroll taxes. If those amount are not sufficient to cover the cost of the paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released this week. The IRS expects to process any such claims in two weeks or less.

Which Employers are Eligible for the Credits?

  • Employers with fewer than 500 employees who pay compensation pursuant to the Paid Leave Mandate are eligible for the Credits.
  • Self-employed individuals (independent contractors and partners of partnerships) who pay compensation pursuant to the Paid Leave Mandate are also eligible for the Credits. The Credits will be claimed on their income tax returns and will reduce estimated tax payments.
  • Governmental employers are not eligible for the Credits.

How Long will the Paid Leave Mandate and Credits Last?

The Paid Leave Mandate and the accompanying availability of the Credits will sunset on December 31, 2020.

The Department of Labor has announced that it will be issuing a temporary non-enforcement policy that allows each applicable employer 30 days to come into compliance with the Act, as long as such employer acts in good faith to comply in the interim.

The Tax and Benefits Team is ready to assist with questions or compliance steps. Please contact one of our Tax or Benefits attorneys or the Nelson Mullins attorney with whom you work.



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