CLIENT ALERT – March 24, 2020
Updated Information Regarding
Families First Coronavirus Response Act
As you know from our previous update, the Families First Coronavirus Response Act was passed on March 18, 2020 and goes into effect on April 2, 2020.
As we indicated in that update, the Department of Labor is expected to introduce regulations interpreting and applying the new law. The Department of Labor has indicated those regulations will be released in early April. That may sound nonsensical but read below for further information and for some preliminary guidance the Department of Labor has already issued.
PRELIMINARY DOL GUIDANCE
On Friday, March 20, 2020, the Department of Labor issued a press release regarding the Families First Coronavirus Response Act. A copy of that press release can be found here: https://www.dol.gov/newsroom/releases/osec/osec20200320. Within that press release, the DOL outlined the following:
- There will be a 30-day non-enforcement period of the requirements of the new law as long as companies are engaging in good faith compliance with the new law. This means that although you may be violating aspects of it in the first 30 days, if you are making good faith efforts to comply, the DOL will not take action against you. This essentially allows some wiggle room since the regulations may not be issued by the DOL until after the April 2nd effective date.
- Employers with fewer than 50 employees will be eligible for exemption from the requirements to provide leave (both paid sick leave and the expanded family leave) to care for a child whose school is closed or child care is unavailable in cases where the viability of the business is threatened. The Department of Labor has indicated it will release emergency guidance and rulemaking to clearly articulate the standard to meet this exemption. Notably, no indication was provided as to whether the regulations will exempt small employers from the other requirements of the Emergency Paid Sick Leave Act.
- The IRS (in conjunction with the DOL) has devised a method to provide for immediate reimbursement of employers for the tax credit available under the law. See more in the Tax Credit discussion below.
- Health insurance costs will be included in the tax credit provided for under the law.
TAX CREDIT
As outlined in our initial update, the Families First Coronavirus Response Act provides a 100% tax credit for employers that must pay qualified paid sick leave or qualified paid family leave under the new law. In the March 20 press release, the DOL explained the immediate nature of this tax credit, something that should ease the burden on employees.
Traditionally, and as most of you know, when employers pay their employees, they are required to withhold from the employees’ paychecks any federal income taxes and the employees’ share of Social Security and Medicare taxes. Employers then must deposit those taxes along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns.
When the DOL issues its regulations and guidance, it will provide that any employers that must pay qualified paid sick leave or qualified paid family leave under the Families First Coronavirus Response Act will be able to retain from their payroll taxes deposit an amount equal to what they paid in qualified paid leave (up to the relevant caps under the law per employee). If there are not sufficient payroll taxes to cover the amount of qualified paid leave paid, employers will be able to file a request with the IRS for an accelerated payment from the IRS to cover the difference and the IRS expects those requests to be processed within two weeks or less. In addition to the regulations, details of this process and the required forms will be released shortly.
For example, if you paid $8,000 in qualified leave benefits under the new law and you are otherwise supposed to deposit $10,000 in payroll taxes, you can withhold the $8,000 and merely deposit $2,000. If the inverse is true and you paid $10,000 in qualified leave benefits under the new law and you are otherwise supposed to deposit $8,000 in payroll taxes, you can withhold the full $8,000 and file a request with the IRS for an accelerated payment of the additional $2,000.
This method is meant to provide immediate funds to employers to pay the qualified paid leave under the new law and we view this as great news.
We will continue to keep you updated on changes and we will provide an update once the Department of Labor releases its emergency guidance and regulations. Until then, please reach out to us if you have any questions.
