Sick Pay Credits

As previously reported, the Families First Coronavirus Response Act, which was signed into law last week, includes provisions for payroll tax credits for wages paid under the Emergency Family and Medical Leave Expansion Act (EFMLEA) and Emergency Paid Sick Leave Act (EMPSLA). The IRS and Department of Labor issued IR-2020-57 indicating there will be additional guidance issued this week regarding the process of companies being reimbursed for the amount of theses credits. Prior to the additional guidance, the IRS is indicating that companies will be able to retain an amount of payroll taxes, equivalent to the credit amount, that otherwise would have been required to have been deposited with the IRS. If the amount of credit is in excess of the required deposit, the IRS has indicated there will be an accelerated payment form that can be filed. The IRS expects to process the refund requests in two weeks or less.

The IRS provided the following two examples in IR-2020-57:

If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $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 would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.

If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.
The preliminary guidance is good news for many companies, as it minimizes the time between the company’s cash outflow to comply with EFMLEA and EMPSLA and the reimbursement from the IRS.