March is typically when Denver companies are focused on finalizing tax returns and reviewing financial reports leading to the end of the first quarter. However, rather than focusing on these tasks, many management teams are reacting to Coronavirus (COVID-19). The city-wide closing of dine-in restaurants, public gyms, movie theatres, schools, and a ban on events of 50 or more people, demonstrate the seriousness of the situation. However necessary when viewed nationally these changes could be a catalyst to an economic recession or worse. This was solidified when the Dow experienced the largest single-day drop of 2,997 points. To help control the situation the Federal Reserve Bank lowered interest rates to 0% and the House passed the Families First Coronavirus Response Act. The Act provides important resources for testing and unemployment but also outlines mandated sick leave policy changes and associated tax credits. To help clients, prospects, and others, Hanson & Co has provided a summary of key details below.
Emergency Paid Sick Leave
A component of the overall legislation, known as the Emergency Medical Sick Leave Act, requires companies with less than 500 employees to provide two weeks of paid sick leave time, at regular pay rate, to those seeking a diagnosis, care or quarantine. In addition, employers will be required to pay 2/3 regular rate for time off due to care for an affected family member, or to care for a child whose school or childcare provider is closed. Full-time employees are entitled to 80 hours of paid time off and part-time employees the number of hours they would typically work in a two-week period. Companies with fewer than 50 employees are eligible for an exemption to requirements related to school closings and child care availability.
Paid Sick Leave Tax Credits
- Payroll Credit for Paid Sick Leave – There is a refundable tax credit equal to 100% of qualified sick leaves wages paid the employer for each quarter. The credit can be taken against the employer portion of Social Security taxes due on required wages paid for emergency sick leave. For wages paid to full-time employees that obtain a diagnosis, care or are subject to isolation and take sick leave, the credit is limited to $511 per day. For amounts paid to employees caring for sick relatives or caring for a child whose school has been closed, the credit is limited to $200 per day.
- Self Employed Individual Credit – There is also a 100% refundable tax credit available for qualified sick leave related to the diagnosis, care, and isolation related to Coronavirus. For those caring for an affected family member of a child facing cancelled school, the credit is equal to 67% of qualified sick leave. This credit is available against federal income taxes and is refundable.
Family Leave Act Changes
There are also changes to the Family and Medical Leave Act of 1993 that expand these benefits to cover qualifying Coronavirus events. Under the changes, any company with less than 500 employees is required to offer qualifying employees 12 weeks of job-protected leave. A qualifying event includes an employee diagnosis, care, isolation and time needed to care for a sick relative or a child whose school has been closed.
Family Leave Act Tax Credits
- Payroll Credit for Required Family Leave – There is a 100% refundable tax credit of qualified family leave wages paid. The credit is designed to be used against the employer’s Social Security portion of payroll taxes. Qualified wages are those required to be paid in accordance with the Family Leave Act changes. The amount of wages considered for each employee is limited to $200 per day and capped at $10,000.
- Self Employed Credit for Family Leave – There is a refundable tax credit equal to 100% of qualified family leave equivalent for certain self-employed individuals. This includes those who would be entitled to receive pay under the Family Leave Act changes if they worked as a W-2 employee. The amount is capped at the lesser of $200 per day or the average self-employment income for the taxable year per day.
Although the Act has not been passed by the Senate, it’s expected to be rather quickly given the broad bipartisan and White House support. It’s important for Denver companies to review their policies and determine how they may be financially and otherwise affected. If you have questions about the information outlined above or need assistance with a continuity or insurance concern, Hanson & Co can help. For additional information call us at 303-388-1010 or click here to contact us. We look forward to speaking with you soon.