Employers May Get Tax Credits for Paid Sick Leave

12 US states and Washington, DC, have legal requirements for paid sick leave. However, many businesses operating in other parts of the country have no standalone paid sick leave policies in place—for full-time or part-time employees. 

Without a dedicated sick leave policy, employees may not feel comfortable taking days off, even when they are ill.

COVID-19 has shed light on the lack of structure surrounding paid sick leave, with businesses from McDonald’s to Amazon facing severe backlash for their mishandling of paid sick leave. 

For example, Business Insider recently wrote that at least 5 of Tyson’s employees have died from coronavirus complications with hundreds more falling ill in their factories. Further, 148 of the 166 confirmed COVID-19 cases in Columbus Junction, Iowa, are Tyson employees. Tyson has no paid sick leave policy in place, which is, in part, causing the spread of the virus.

With the uncertainty surrounding the economy right now, employees are sacrificing their health for a paycheck. These situations often occur on the front lines of large corporations to employees who cannot afford to take unpaid time off or risk losing their livelihood—even when sick. 

To bridge the gaps in paid sick leave and prevent the spread of COVID-19, the federal government passed the Families First Coronavirus Response Act (FFCRA), which offers a solution to employers. 

Qualifying businesses will receive tax credits for offering paid sick leave to employees during the pandemic.  

Learn whether you qualify for this program and how to access the funds. 

What is the FFCRA and Why Was it Passed?

From April 1 through the end of 2020, the government will reimburse small to midsize businesses with fewer than 500 employees for any costs associated with giving employees paid leave—for their own health needs or to care for family members. 

These tax credits were responses to 2 other provisions created to fight the spread of the coronavirus. The Emergency Paid Sick Leave Act (EPSLA) requires employers to give employees up to 80 hours of paid sick time, while the expansion of the Family Medical Leave Act (Expanded FMLA) gives workers access to paid family and medical leave. 

Small businesses with fewer than 50 employees are exempt from providing paid sick leave to employees if they can prove that it would jeopardize their ability to conduct business.

Full-time, part-time, and temporary employees are included in this legislation, along with the tax exemptions. Unfortunately, independent contractors are not considered employees under this law.  

How Can You Access Your FFCRA Credits?

You have multiple ways to access your FFCRA tax credits, depending on your business needs. First, you can retain funds that you would otherwise pay to the IRS in payroll taxes. You can immediately retain the amount you need to cover paid sick leave for the month of April and continue to hold it moving forward. 

If the amount you need to pay for COVID-19 sick leave is greater than your tax amount, you can apply for a refund on your taxes. The IRS plans to issue these refunds within 2 weeks. 

Finally, you can fill out Form 7200, Advance Payment of Employer Credits Due to COVID-19, which requests an advance payment of tax credits. However, you must have records of the sick leave needed for each employee to prove that you need the advance to cover the already accrued costs.

Self-Employed Individuals Can Also Get a Tax Credit

Sole proprietors and self-employed individuals can also take a tax credit to set off the costs of any sick time. When individual entrepreneurs can’t work, their businesses close entirely, costing them income much like a traditional business. 

The available tax credits are based on the number of days during the tax year that a person couldn’t work because of illness, healthcare provider-mandated quarantine, or state and local isolation due to the coronavirus. The maximum amount that a self-employed individual can credit themselves is $411 for individual leave and $200 in family care leave. 

Take Steps Today to Provide Paid Sick Leave

If you are worried that the Department of Labor is going to fine or audit your company if you do not currently offer paid sick leave, know that you have a grace period to get your company policies in order. 

The DOL said that it will not bring any enforceable action against companies yet to provide paid sick leave for the first 30 days of the new laws. This grace period applies to companies “acting in good faith,” meaning they are developing a sick leave policy and enacting it. 

It is in your company’s best interest to provide paid sick leave as soon as possible, whether or not you have access to the tax credits. If your staff knows that they won’t be punished financially or otherwise for calling in sick, they are more likely to do so.

This proactiveness will keep your employees and their families safe while also protecting your company and its operations.    

The CARES Act was the first response by the federal government to protect employees and prevent spikes of unemployment during the coronavirus pandemic. The FFCRA is another provision to help employers keep staff members safe and on the payroll. Continue following our coronavirus updates for other news, updates, and strategies to help your business through this difficult time.

The information provided in this post does not, and is not intended to, constitute tax advice; instead, all information, content, and materials available in this post are for general informational purposes only. Readers of this post should contact their tax professional to obtain advice with respect to any particular tax matter.