Reimbursement To Employers For Emergency Paid Sick Leave & Emergency Paid FMLA Pursuant To Families First Coronavirus Response Act

By Swerdlow Florence Sanchez Swerdlow & Wimmer

March 25, 2020

In our E-Alert last week, we reported that employers with fewer than 500 employees will be required to provide emergency paid sick leave (“EPSL”) and emergency paid Family and Medical Leave (“E-FMLA”) pursuant to the Families First Coronavirus Response Act (the “Act”). The Act specifies that the government will provide tax credits for such paid leave. Following the Act’s passage, however, many questions surfaced regarding how such tax credits would work. The Internal Revenue Service (“IRS”) and Department of Labor (“DOL”) have jointly issued guidance regarding what they promise will be “swift” reimbursement.

When employers pay their employees, they are required to withhold from their employees’ paychecks federal income taxes and the employees’ share of Social Security and Medicare taxes. Employers then are required to deposit these federal taxes, along with the employer’s share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns (Form 941 series) with the IRS.

Under the IRS/DOL guidance, eligible employers who pay EPSL and/or E-FMLA benefits will be able to retain an amount of the payroll taxes equal to the amount of EPSL and/or E-FMLA benefits that they paid, rather than deposit them with the IRS.

The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees. If there are not sufficient payroll taxes to cover the cost of EPSL and/or E-FMLA benefits, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. Further details of this new, expedited procedure will be announced shortly.

The guidance provides the following two examples:

Example 1:  If an eligible employer paid $5,000 in EPSL and is otherwise required to remit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer then would only be required to deposit the remaining $3,000 on its next regular deposit date.

Example 2:  If an eligible employer paid $10,000 in EPSL and was required to remit $8,000 in payroll taxes, the employer could file a request for an accelerated credit for the remaining $2,000.

The guidance provides that these tax credits are available for self-employed individuals as well. Such credits will be claimed on income tax returns and will reduce estimated tax payments.

Finally, the DOL has stated that it will not bring an enforcement action against employers for any violations within the first 30 days the law is in effect so long as the employer has acted “reasonably and in good faith to comply” with the Act. What this means is not entirely clear, but should provide some comfort to employers trying to navigate these new requirements.