Families First Coronavirus Response Bill (H.R. 6201)

Yesterday, March 18, 2020, the Senate passed the Families First Coronavirus Bill, H.R. 6201, unchanged from the version passed by the House, as summarized below. President Trump signed the Bill into law yesterday.

Update: Tax Provisions included in Amended House Bill

The amended Families First Coronavirus Response Bill, H.R. 6201, (the “Bill”) passed by the House on March 16, 2020, and sent to the Senate includes tax credits arising from the expense borne by certain employers resulting from the paid sick leave and paid family leave mandated by the Bill.¹ These credits are the focus of this discussion.²

Payroll Credit for Required Paid Sick Leave

The tax credits for paid sick leave under the Bill are capped at $511 per day per employee on sick leave resulting from COVID-19 if 1) the employee has been ordered to quarantine or isolate themselves by the federal, state or local authorities; 2) the employee has been advised to self-quarantine by a health care provider; or 3) the employee has experienced symptoms of COVID-19 and is seeking a medical diagnosis.

The tax credits for paid sick leave under the Bill are capped at $200 per day per employee on sick leave resulting from COVID-19 if 1) the employee is caring for a person subject to an order to quarantine by federal, state, or local authorities or is self-quarantined as advised by a health care provider or 2) the employee is caring for a child as a result of school closures or the unavailability of child care providers.

The employer is entitled to tax credits for 10 days of sick leave pay per employee under the Bill to the extent utilized by the employee and capped at the appropriate amount mentioned above.

Payroll Credit for Required Paid Family Leave

The tax credits for paid family leave under the Bill are capped at $200 per day per employee on family leave resulting from COVID-19 up to an aggregate amount of $10,000.

Credit Increased for Certain Tax-Excluded Health Benefits and Medicare Hospital Insurance Tax

The credit allowed is increased under the Bill by so much of the employer’s qualified health plan expenses as are properly allocable to the qualified sick leave wages for which the credit is allowed. Qualified health plan expenses are amounts paid or incurred by the employer to provide and maintain a group health plan, but only to the extent such amounts are excluded from the employees’ income as coverage under an accident or health plan. Qualified health plan expenses will be allocated to qualified sick leave wages as the Secretary of the Treasury (or the Secretary’s delegate) may prescribe in future guidance. Except as otherwise provided by the Secretary, such allocations are treated as properly made under the provision if made on the basis of being pro rata among covered employees and pro rata on the basis of periods of coverage (relative to the time periods of leave to which such wages relate).

The amount of the credit is also increased by the amount of tax imposed under the Medicare hospital insurance tax on the employer on qualified sick leave wages or qualified family leave wages on which the credit is allowed under the Bill.

General Requirement of Tax Credits

Only employers who make payments to employees in accordance with the Bill and have 500 or fewer employees are entitled to the tax credits. The credits may only be used to offset the employer’s portion of the Social Security payroll tax imposed by section 3111(a) (or, if applicable, the so called “Tier 1” Railroad Retirement Tax Act taxes). But, if there are any credits in excess of the employer’s portion of such tax the excess will be treated as a refundable overpayment.

The Bill includes provisions extending the credits’ benefits to self-employed individuals.

The Bill prevents any double benefit (for example, claiming both a deduction for sick leave and/or family leave wages paid as well as the associated credit) by requiring the gross income of any employer claiming the credit to be increased by the amount of the credit. For example, assume an employer claims a credit of $5,510 for $5,110 of qualified sick leave wages and $400 of health plan expenses paid during the quarter. Under the provision, the employer has an offsetting income inclusion amount of $5,510, and the employer may deduct $5,110 of qualified sick leave wages and $400 of health plan expenses (assuming such costs are not subject to capitalization).

The credits would apply to qualified sick and family leave wages paid with respect to the period beginning on a date selected by the Secretary of the Treasury which is during the 15 day period beginning on the date of enactment of the Bill, and ending on December 31, 2020.

1. For a more comprehensive description of the bill see “UPDATE: House Amends Coronavirus Response Bill” (March 17, 2020) and “Coronavirus Response Bill Passes House, Would Provide Paid Leave, Expand FMLA for Certain Employees” (March 16, 2020) .

2. See “TECHNICAL EXPLANATION OF DIVISION G, ‘TAX CREDITS FOR PAID SICK AND PAID FAMILY AND MEDICAL LEAVE,’ OF H.R. 6201, THE ‘FAMILIES FIRST CORONAVIRUS RESPONSE ACT’” by the Joint Committee on Taxation (March 17, 2020).