The COVID-19 shelter-in-place requirement has caused most businesses to close their doors, leaving employees without a job to complete. Under the Families First Coronavirus Response Act (FFCRA), businesses are required to provide employees who are unable to complete their work, two weeks (up to 80 hours) paid sick leave on top of what they already provide.
To assist employers subject to the paid sick leave and expanded paid Family and Medical Leave Act (FMLA) provisions under the FFCRA, the law permits employers to claim immediate tax credits. Any payments made to employees pursuant to the leave provisions of the FFCRA are available as full tax credits to employers. In addition to actual wages paid to employees on leave, employers may also claim tax credit for ‘qualified health plan expenses’ paid on behalf of employees taking leave under FFCRA. ‘Qualified health plan expenses’ seem to include any payments made by an employer to maintain a group health plan, and that are not taxable income to an employee. This would include the employers’ share of group plan premiums, and any related payments to accounts such as an HRA.
Employers will report the total amount of qualified sick leave wages they paid and claim related tax credits on the Quarterly Federal Tax Return, Form 941. Employers may reduce the amount of taxes they would otherwise own in advance of filing Form 941, by deducting qualified sick leave wages from their quarterly deposit.
If an employer’s payments to employees on FFCRA paid leave plus employer share of health plan premiums exceeds the tax liability the employer would owe to the IRS, the employer may file Form 7200 to request an advance IRS payment of these ‘credits’.
Employers should consult their accountants and tax advisors before they take action under the permissible tax credit claim methods under the applicable laws.
Employers with fewer than 500 employees at the time a request for leave, should ensure they keep proper documentation of all wages paid to employees taking paid sick leave or paid expanded FMLA to claim tax credit for wages paid, and employer share of tax-free premiums paid for these employees' group health plan premiums.
Have questions about employer tax credits for paid leave and health plan expenses under FFCRA, contact the benefits team at Heffernan Insurance Brokers.
IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication, unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.
Heffernan Employee Benefits Health Care Reform, ERISA, and HR Alerts are published as an information source for our clients and colleagues. It is general in its nature and is not intended to be and should not be used as a substitute for specific legal advice.