By Andrea LaPlant, PHR, SHRM-CP, Compliance Consultant at Trüpp.
We have updated and republished this article due to changes resulting from the American Rescue Plan.
Step 1: Determine eligibility
All employers with less than 500 employees have the option to provide Paid Emergency Leave for employees who are unable to work as a result of the COVID-19 pandemic. Qualifying reasons include missing work to receive a COVID-19 vaccine, to recover from complications related to receiving a COVID-19 vaccination, to quarantine, to seek a COVID-19 diagnosis or preventive care. Additional provisions are included for employees caring for a family member with a COVID-19 diagnosis, or to care for a child whose school or daycare has closed as a result of coronavirus concerns.
Employers should have employees complete a leave request form that is compliant with Department of Labor (DOL) and Internal Revenue Service (IRS) requirements. The IRS and DOL have released specific criteria for documenting employee eligibility and need for the leave in order for the employer to be eligible for the tax credit. Trüpp has created a free DOL/IRS compliant Employee Leave Request Form that you can download here.
Step 2: Set up unique pay codes and determine the amount of qualified health plan expenses
Employers can, however, receive a tax credit on their quarterly payroll tax filings for the amounts paid to employees under emergency leave along with allocable qualified health plan expenses. We recommend setting up unique pay codes that identify the exact hours/wages paid under these requirements to make reporting go more smoothly. Employers should also ensure that qualified health plan expenses are properly allocated to the qualified sick or family leave wages, which includes both employer-paid and employee-paid pre-tax premiums.
Step 3: Set up and configure taxes
Employee Payroll Taxes
Amounts paid to employees as Paid Sick Leave or Paid Family and Medical Leave are taxable to the individual employee and subject to employment taxes.
Employer Payroll Taxes
Amounts paid to employees as Paid Sick Leave or Paid Family and Medical Leave:
- ARE NOT considered wages for the purpose of determining the employer’s share of Social Security taxes
- ARE considered wages in determining the employer’s share of Medicare taxes
Step 4: Access available funds for the cost of providing leave
If employers choose to offer FFCRA paid leave, employers are required to withhold federal income taxes and the employees’ share of Social Security and Medicare taxes from their employees’ paychecks. Typically these funds are deposited with the IRS along with filing or quarterly payroll tax returns (Form 941 series – more about that below!).
However, provisions have been made that enable employers to take immediate advantage of the paid leave credits; employers can now retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a Form 7200 – Advance Payment of Employer Credit Due to COVID-19.
Step 5: File for OASDI tax credit
A tax credit is available against the employer’s portion of OASDI (social security) payroll taxes equal to the amount of Paid Sick Leave or Paid Family and Medical Leave paid to employees when filing the quarterly Form 941 subject to the following caps for each benefit:
Paid Sick Leave
Regular wages up to $511 per day up to ten days for employees missing work to quarantine, to seek a COVID-19 diagnosis or preventive care; or $200 per day for employees caring for a family member with a COVID-19 diagnosis, or to care for a child whose school or daycare has closed as a result of coronavirus concerns.
Paid Family & Medical Leave
Two-thirds of regular wages up to $200 ($12,000 total) per day for up to twelve weeks for employees caring for a child whose school or daycare has closed as a result of coronavirus concerns. There is no waiting period for eligible employees to receive this benefit.
Under the Paid Emergency Leave Act, there will be an allowance of credit for certain employer’s “qualified health plan expenses.” Generally, these expenses include the amounts paid for a group health plan that can be excluded from an employee’s income. The employer’s share of Medicare tax on Paid Sick Leave and Family and Medical Leave wages can also be added to the employer’s credit amount.
Note: Many payroll companies (Paylocity, ADP, etc.) file the quarterly Form 941 on behalf of employers so we recommend communicating with your payroll provider to ensure that they have identified a process to accurately file for these credits.
As always, Trüpp is here to help! If you have questions about managing mandatory paid leave under the Families First Coronavirus Response Act, contact one of our seasoned HR professionals.