How to Get Tax Credits Through the Families First Coronavirus Response Act

There’s no way around it: As the COVID-19 crisis carries on, businesses are being forced to close, scale down or go remote with their operations. I want to help my clients and others navigate these challenging times and make the best possible financial decisions, so I’m sharing all the information I can find on emergency government assistance that’s being made available.

This post will cover the Families First Coronavirus Response Act (FFCRA), which was passed on March 18, 2020. It includes three tax credit provisions to help business owners offer paid medical leave for employees, owner-employees and themselves, if they’re self-employed.

While these tax credits are calculated and implemented in a similar way, there are some key differences. We’ll go through them all one by one:

• Emergency Paid Sick Leave Tax Credit
• Emergency Family and Medical Leave Tax Credit
• Health Insurance Tax Credit Portion
• Self-Employed Paid Sick Leave or Family Medical Leave Tax Credit

And remember, if you need help navigating these tax credits or exploring your options for government funding, you can always schedule a free consultation with us.

Emergency Paid Sick Leave Tax Credit

This part of the Act provides tax credits for employees and caregivers during short-term periods of illness.

Who’s it for? This credit provides for an employee who has been quarantined with COVID-19 symptoms, or who is caring for someone who is quarantined by a medical professional for symptoms.

How much is provided? For a quarantined employee, the available credit is $511 per day or the employee’s daily pay for up to 10 days — whichever is less. That comes to a total tax credit of $5,110 per employee which can be claimed between March 18 and Dec. 31, 2020.

The credit for an employee caregiver is $200 or the employee’s daily pay for up to 10 days, whichever is less. The total tax credit is $2,000 per employee between March 18 and Dec. 31, 2020.

What’s the limit? There is a cap on this credit: the actual credit calculation, or 7.65% of total wages for the quarter, representing the employer portion of Social Security and Medicare taxes, whichever is lower.

Emergency Family and Medical Leave Tax Credit

This tax credit covers longer-term medical leave for parents or those with serious health conditions.

Who’s it for? If you’re a business owner with employees who can’t work due to caring for a child under the age of 18 or due to a declared health emergency, you are eligible for this credit.

How much is provided? This credit equals the employee’s daily pay or $200 per day per employee, whichever is less.

What’s the limit? Up to $10,000 per employee is available from March 18 through Dec. 31, 2020, but credits can’t exceed 7.65% of all wages.

Here’s a handy reference table:

Health Insurance Tax Credit

This part of the Act offers tax credits to cover the employer portion of health insurance premiums.

Who’s it for? Employers can take tax credits to cover their portion of health insurance premiums for employees who can’t work and qualify under either the Emergency Paid Sick Leave or Emergency Family and Medical Leave tax credit.

How much is provided? This credit covers only the employer-paid amount of the premium —  not the portion the employee pays.

What’s the limit? Here, too, the total credit can’t be greater than 7.65% of total wages.

Here’s another chart for reference:

Self-Employed Paid Sick Leave and Family and Medical Leave Act (FMLA) Tax Credit

Here, we’ll outline the tax credits available for those who are self-employed.

Who’s it for? These credits are for those who are self-employed or sole proprietors, and who cannot work due to illness or caregiver responsibilities. The credits are calculated exactly the same for self-employed workers as for employees.

How much is provided? To determine your daily pay amount as a self-employed worker, calculate your average daily self-employment income: That’s your net earnings from self-employment for the taxable year divided by 260.

What about single-employee, single-owner S-corporations? If you’re an owner-employee of an S-corporation, your daily pay rate will be determined by what you consider “reasonable compensation.” An S-corporation’s profits are not considered self-employment income nor salaries and wages, so they’re not included in the daily-pay calculation.

Example — Schedule C taxpayers: Say you had a net income of $50,000 last year. $50,000 divided by 260 equals $192.31. Your daily pay rate would be $192.31. Since this is lower than $200, the amount of credit you would get for one day is $192.31.

Example — Sole proprietors: In this example, say your net income from self-employment last year was $120,000. This brings your daily self-employment earnings to $461.54. Since that’s higher than the cap, your daily credit rate would be $200.

Why? This credit is used to reduce quarterly estimated self-employment tax payments. If you pay quarterly estimated taxes, but you don’t incur any self-employment taxes, then your quarterly estimated tax payment may not be lowered.

If you have employees, then the credit would be calculated for them. Your credit would be calculated based on the method for sole proprietors, since sole proprietors shouldn’t pay themselves on payroll.

Example — Self-employed workers with employees: Let’s say you’re a full-time consultant with two part-time employees. You pay your employees $125 per day, and they each take a few days off; meanwhile, you pay yourself $250 per day, but don’t take any time off.

In this example, the maximum credit you can get is $875, since the allowable credit is less than the total employer Social Security tax amount for the quarter. You would claim this credit on your quarterly Form 941.

Key considerations when claiming tax credits

Here are a few important considerations to keep in mind if you’re planning to claim any of the tax credits we’ve listed here:

• The total credit for the quarter can’t be higher than 7.65% of total wages: in other words, it’s capped at what the employer-paid portion of Social Security taxes would have been.
• You can take credits in 1Q 2020, but it’s unlikely that the IRS will have a revised Form 941 available.
• If you qualify for both the Paid Sick Leave and FMLA tax credits, you can take both in the same period — but you can only use one per day.
• Even if an employee only takes a half-day of leave, that day still counts toward the 10-day limit.
• If you’re self-employed and claiming Paid Sick leave or FMLA credits, you must not be able to work the day(s) you’re claiming.

Does all of this information sound like a lot to process? Schedule a free consultation with us where I’ll walk you through all your options. I not only offer tax-preparation services, I also want to be your trusted financial advisor during these challenging times and beyond.

To learn more about these credits and other federal funding available for business owners impacted by coronavirus, register for my webinar. I’m always here to help!