H.R. 6201, the Families First Coronavirus Response Act ("Act"), signed by President Trump into law on March 18, 2020, generally provides for employer payroll credits against the social security portion of FICA taxes owed by an employer providing required paid sick leave or paid family leave to employees affected by coronavirus. Self-employed individuals may qualify for similar credits against income tax liability for the tax year, for which the credit was claimed due to inability to work as a result of coronavirus. The credit is determined based on the number of days an employee received paid sick leave or family leave for a calendar quarter.
The aggregate amount of payroll or self-employment credit an employer or self-employed individual may claim is capped at $10,000. The payroll and self-employment credit provisions expire on December 31, 2020. In Notice 2020-21, published today, the IRS confirmed that the days to be taken into account for purposes of the paid leave credits under the Act begin on April 1, 2020. Employers and self-employed individuals affected by the coronavirus must begin calculating paid leave or absence from work due to coronavirus beginning on April 1, 2020 in order to claim the applicable tax credit.
Any portion of the credit for paid leave or qualified paid leave equivalent that could not be applied due to insufficient payroll or income tax liability will be refunded to the employer or self-employed individual. Employers and self-employed persons should consult their tax adviser on determining eligiblity for the tax credits, the advance or refund procedures, the related withholding rules, and inclusion in income by an employer of payroll credits or refunds. Further IRS guidance is expected to be issued to clarify these substantive and procedural requirements.