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IRS and DOL Announce Employers Can Take Immediate Advantage of Tax Credit Offsets Under the Families First Coronavirus Response Act

Posted on: March 23rd, 2020

By: Jeffrey A. Hord

On Friday, the Internal Revenue Service and U.S. Department of Labor issued an announcement regarding the timing of reimbursement by the federal government to employers for paid emergency leave and expanded FMLA leave required under the new Families First Coronavirus Response Act (“FFCRA”). This guidance (available here) represents an important step towards providing employers with greater clarity as to how and when their businesses can obtain tax relief relating to the cost of providing Coronavirus-related leave to employees.

As we covered in this Blog last week, the FFCRA requires private employers with fewer than 500 employees to provide paid sick leave and paid family leave for certain individuals impacted by the COVID-19 pandemic. Understandably, small businesses have been extremely anxious about the financial burden of complying with these new requirements, particularly during this time of economic uncertainty and unrest. For this reason, the FFCRA created a series of refundable tax credits for employers providing paid emergency sick leave or paid FMLA leave.  As written, however, the FFCRA left unanswered many key questions regarding the process for obtaining these credits, the timing of subsequent reimbursement, and so on.

In Friday’s announcement, the DOL and IRS made clear that employers can begin to “take immediate advantage” of these tax credits by retaining and accessing funds that they would otherwise pay to the IRS in payroll taxes. Here are some of the “key takeaways” highlighted in the announcement:

  • Complete Coverage
    • The tax relief provisions of the FFCRA are intended to provide “dollar-for-dollar,” 100% reimbursement for Coronavirus-related employee leave.
      • Health insurance costs are also included in the credit: the amount of the credit is increased by the employer’s “Qualified Health Plan Expenses” that are allocable to the qualified sick leave wages.
    • Employers face no payroll tax liability.
  • Prompt Recoupment of Employer Costs
    • Employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.
      • Payroll taxes available for retention include withheld federal income taxes and both the employer and employee shares of Social Security and Medicare taxes.
    • In other words, any taxes held in escrow for payment on FICA, Social Security and Medicare taxes now could be used to pay employees taking paid leave under the new law.
    • If these retained payroll taxes are not enough to cover the cost of leave paid out to employees, employers will be able file a request for an accelerated payment from the IRS.
      • The turnaround time for such requests is expected to be “two weeks or less.”
  • Relaxed Compliance
    • The Department of Labor is issuing a “temporary non-enforcement policy that provides a period of time for employers to come into compliance with the Act.”
      • Under this policy, DOL will not bring an enforcement action against any employer for violations of the FFCRA until May 2, 2020—thirty (30) days after its effective date—so long as the employer has “acted reasonably and in good faith” to comply.
        • According to DOL, “good faith” exists when: (i) violations are remedied and the employee is made whole as soon as practicable by the employer, (ii) the violations were not willful, and (iii) the employer submits a written commitment to comply in the future.
  • Small Business Protection
    • Businesses with fewer than 50 employees are eligible for an exemption from the leave requirements relating to school closings and/or unavailable child care.
      • As with the exemptions set forth in Sections 3102 and 5111 of the FFCRA, the employer must show that compliance would “jeopardize the viability of the business as a going concern”; i.e., the ability of the business to remain open and continue operating.
      • DOL will be providing emergency guidance establishing simple and clear criteria defining the circumstances that will meet the standard of “jeopardy to the viability of an employer’s business as a going concern.”
    • While not referenced in Friday’s announcement, small business (with fewer than 50 employees) are already exempt from civil liability in an FMLA lawsuit relating to the FFCRA’s expanded family leave provisions.[1]

This announcement is sure to give some comfort to employers worried about how they would cover paid leave mandates without knowing when they might be reimbursed for those substantial costs. Cash flow concerns have already caused many businesses to make difficult furlough and termination decisions; hopefully, this guidance will help employers navigate through this unprecedented time.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients. Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the Coronavirus pandemic, including issues related to Labor & Employment, Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments. For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

 **DISCLAIMER: The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19. The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement. We can only give legal advice to clients. Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG. An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest. As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce educational content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such. We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.** 

[1] See Emergency Family and Medical Leave Expansion Act, Section 3104.

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