IRS Issues Additional Guidance on Paid Leave Tax Credits Included in the FFCRA

Tuesday evening, the Internal Revenue Service issued much-anticipated guidance on the COVID-19 related tax credits for required paid leave provided by small and midsize businesses. More information can be found on the IRS website here.

These tax credits were included as part of the Families First Coronavirus Response Act (the “FFCRA”) signed by President Trump on March 18, 2020. They provide small and midsize employers refundable tax credits that reimburse them, dollar-for-dollar, for the cost of providing paid sick and family leave wages to their employees for leave related to COVID-19.

The FFCRA gives “eligible employers” (defined as businesses under 500 employees) funds to provide employees with paid sick and family and medical leave for reasons related to COVID-19, either for the employee’s own health needs or to care for family members.

Workers may receive up to 80 hours of paid sick leave for their own health needs or to care for others, and up to an additional ten weeks of paid family leave to care for a child whose school or place of care is closed or whose child care provider is closed or unavailable due to COVID-19 precautions.

The FFCRA covers the costs of this paid leave by providing eligible employers with refundable tax credits. Certain self-employed individuals in similar circumstances are entitled to similar credits.

The guidance issued by the IRS yesterday provides a Q&A style overview of how businesses should calculate and claim the credits against their future payroll tax deposits. It offers additional details on the new credits and process, including:

  • More detailed guidance on how to determine the amount of the tax credit for the Qualified Sick Leave Wages and Qualified Family Leave Wages
  • How to determine the amount of the allocable qualified health plan expense
  • How to claim the credits using new IRS form 7200
  • How an employer should substantiate eligibility for tax credits for qualified leave wages
  • Taxation and deductibility of the tax credits
  • Special provisions related to self-employed individuals

In its attempt to provide much needed relief to businesses, immediate cash is available for businesses that are eligible for the credit in the form of reducing future payroll tax deposits. Any credits that are in excess of payroll tax deposits for the quarter are eligible for an advance credit refund on new IRS form 7200. Also, there are specific substantiation and documentation requirements for businesses to file when claiming the credits.

If you need assistance with this or any other COVID-19 related matters, please contact your Kreischer Miller relationship professional or any member of our team.

Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.