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Payroll Tax Credit for Qualified Emergency Paid Sick Leave and Emergency FMLA

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The Department of Labor issued a release giving details on the payroll tax credits for qualified emergency paid sick leave (EPSL) and emergency Family and Medical Leave Act (FMLA) leave under the Families First Coronavirus Response Act (FFCRA).  More guidance will follow.

Eligible employers who pay qualifying EPSL or emergency FMLA leave can retain an amount of the payroll taxes equal to the amount of the leave that they paid, rather than deposit those payroll taxes with the IRS.

Employers can retain withheld federal income taxes, the employee share of Social Security and Medicare taxes and the employer share of Social Security and Medicare taxes with respect to all employees.

If qualifying EPSL or emergency FMLA exceeds payroll taxes, employers will be able file a request for an accelerated refund from the IRS. The IRS states that it expects to process these requests in two weeks or less.  Details and procedures will be announced next week.  The DOL release provided the following examples:

  • 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.

For more information about COVID-19 tax related matters or developments, please contact the author.

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