Tax Credit for Paid Sick and Family Leave in the Families First Coronavirus Response Act (H.R. 6201) (IN11243, Version 1)

Summary

A Congressional Research Service Insight, IN11243, dated March 16, 2020 and written by Molly F. Sherlock, on the employer tax credit for paid sick and family leave in the Families First Coronavirus Response Act (H.R. 6201). The Act requires private employers with fewer than 500 employees, and all government employers, to provide two workweeks of paid sick leave, and the credit is claimed against the employer's 6.2% share of Social Security payroll tax. The credit is refundable and covers 100% of sick leave wages up to $511 per day for 10 days, and family leave wages up to $200 per day and $10,000 total. Self-employed individuals, including gig workers, get similar income tax credits. Employees of large businesses would not have guaranteed access to paid sick or family leave.

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INSIGHTi

Tax Credit for Paid Sick and Family Leave in
the Families First Coronavirus Response Act
(H.R. 6201)

Molly F. Sherlock
Specialist in Public Finance

March 16, 2020
The Families First Coronavirus Response Act (H.R. 6201) includes an employer tax credit for the paid
sick and family leave required as part of this legislation. This tax credit is intended to help businesses
with the cost of providing paid leave to address the coronavirus disease (COVID-19) pandemic.

Tax Credits for Paid Leave
The employer payroll tax credit is for wages paid to fulfill the new leave requirements. The Emergency
Paid Sick Leave Act, Division E of H.R. 6201, requires private employers with fewer than 500
employees, and all government employers, to provide employees with two workweeks of paid sick leave
for coronavirus-related leave purposes. The Emergency Family and Medical Leave Expansion Act,
Division C of H.R. 6201, provides employees of employers with fewer than 500 employees expanded
job-protected Family and Medical Leave Act (FMLA) leave; under certain conditions this leave must be
partially compensated by employers. The legislation expands access to paid sick and family leave for
employees at many small- and mid-sized businesses. Employees of large businesses, however, would not
have guaranteed access to paid sick or family leave under this proposal.

Employer Payroll Tax Credit
The employer payroll tax credit is computed using wages paid, and claimed against the employer’s share
of the Social Security payroll tax in each calendar quarter. The Social Security payroll tax rate is generally
12.4% of wages, with 6.2% paid by employers and 6.2% paid by employees. The tax applies to workers’
earnings up to an annual limit, $137,700 in 2020. The Social Security trust fund will not be affected by
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IN11243

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the tax credit. A general fund transfer to the trust fund will offset the reduction in federal revenues from
the tax credit.
The tax credit is refundable. If an employer’s tax credits exceed its payroll tax liability, the excess can be
received as a payment from the Treasury. Employers that claim this credit are required to include the
amount claimed in gross income, for income tax purposes, offsetting the reduction in gross income from
deducting wages paid (preventing a double benefit). Additionally, employers cannot claim this credit for
any wages taken into account for the purposes of calculating the employer tax credit for paid family and
medical leave. Employers may also elect not to have the credit apply. The credit does not apply to state or
local governments. The tax credits can be claimed for a period to begin within 15 days following
enactment, and ending December 31, 2020.

Sick Leave
Employers can claim a tax credit for amounts required to be paid in sick leave wages to individuals who
miss work to (1) self-isolate because of coronavirus diagnosis; (2) obtain a medical diagnosis or care for
coronavirus symptoms; or (3) quarantine based on the recommendation or order of a public official or
health care provider. Sick leave wages are paid at 100% of the employee’s normal wages, and the tax
credit is 100% of qualifying sick leave wages, up to $511 per day. A maximum of 10 days of paid sick
leave can be taken into account when determining the tax credit.

Family Leave
The employer tax credit for family leave is 100% of qualified family or medical leave wages paid, up to a
maximum amount. Family and medical leave wages include those paid to individuals who are (1)
quarantining on the recommendation or order of a public official or health care provider and cannot
perform their work while doing so; (2) caring for an at-risk family member who is in quarantine on the
recommendation or order of a public official or health care provider; or (3) caring for a minor child whose
school or place of care has closed, or whose child-care provider is unavailable due to coronavirus.
The paid leave period for the purposes of the tax credit begins once an individual has taken 14 days of
leave for a family (or medical) leave purpose described above. These 14 days of leave may consist of
unpaid leave, or an employee election to use paid vacation, personal, or other medical or sick leave. After
this 14-day period, employees will receive a benefit from their employers that is at least two-thirds of the
employee’s usual pay. The tax credit for family leave wages is limited to $200 per day, and $10,000 total.

Tax Credit for Self-Employed Individuals
Self-employed individuals, including gig workers, are eligible for tax credits similar to above. If
individuals are unable to perform services in their trade or business for the sick leave purposes described
above, the individual may qualify for an income tax credit equal to 100% of average daily self-
employment income. Like the employer credits, this credit is limited to $511 per day for qualifying sick
leave purposes, and $200 for other qualified leave purposes. The sick leave credit is limited to a
maximum of 10 days. The family leave credit is limited to 50 days. For self-employed individuals, the
income tax credit is refundable (meaning that if the tax credit amount exceeds the individual’s income tax
liability, the excess is received as a refund, or payment, from the Treasury). Like the employer tax credit,
the tax credits for self-employed taxpayers can be claimed for a period to begin within 15 days of
enactment, and ending December 31, 2020.
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Issues and Considerations for Congress
The tax credit for required paid sick and family leave will largely offset the cost of providing such
required leave in the Emergency Paid Sick Leave Act. The legislation mandates leave for employees of
firms that employee fewer than 500 employees. In 2019, 47.6% of employees worked in firms with fewer
than 500 employees. The other 52.4% of employees worked in large firms, or firms with 500 or more
employees. This legislation does not mandate sick leave for employees of these firms who may not have
access to paid sick or family leave. Nor does it provide tax credits for these larger firms for providing
leave. Some experts have expressed concern about this potential gap in coverage.
A refundable payroll tax credit will likely reduce the financial burden of providing required paid sick and
family leave. The credit, however, does not necessarily encourage businesses to provide additional leave
beyond what is required. Employees of large businesses in particular may be left without coverage.
Additionally, this credit is not designed to help businesses who have suffered lost business as a result of
COVID-19.

IN11243 · VERSION 1 · NEW
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