Tax Credits

Tax Credits and Funding for Wages Paid Under Expanded FMLA and Emergency Sick Leave Provisions of the Families First Coronavirus Response Act (FFCRA).

Please note- at this time we are only able to answer some of the many questions businesses will have about the Act. The legislation itself does not provide all of the specific rules that will be applied here. These clarifications will emerge as the Department of Labor and the IRS issue rules regarding the procedures related to this Act. We will update our FAQ’s as more information becomes available.

Q. Does the employer have to bear the cost burden associated with these new benefits?

A. Ultimately, no. The intent of the Act is to reimburse employers for wages and associated costs through the use of tax credits applied against employer taxes reported on the quarterly Form 941.

Q. What credits will be available?

A. There are three types of credits currently defined:

  1. 100% of wages paid for these benefits (up to any individual employee caps specified in the Act) can be used to reduce the employer tax liability to the IRS.

  2. Also, the employer share of Social Security and Medicare taxes associated with these wages may be taken as a credit.

  3. Finally, an employer's contribution to the cost of health insurance for an employee may be included in the credit (For Emergency Sick Leave). This would be limited to the amount of the health insurance contribution that can be allocated to the wages paid to the employee under these circumstances.

Q. How and when will the employer receive these credits?

A. That is not yet clear and will need to be defined by the IRS's rule-making process. We foresee at least two possible scenarios:

  1. Allowing the employer to reduce the amount of tax to be deposited each pay period by the amount of wages and costs associated with wages paid during that tax deposit period.

  2. Having the employer claim the tax credits at the end of each quarter on the Form 941.

It is hoped that the IRS will allow for the first option, as that will provide more immediate relief to employers. our industry association (as well as others) are actively lobbying for this type of solution

Q. What if my FFCRA wages and costs are more than my employer tax liability?

A. The Act provides for a refund of any wages and costs paid in excess of the employer's actual tax liabilities. This would most likely be done through the From 941.

Q. What about FUTA and SUTA taxes on the FMLA or Sick Leave Wages?

A. This is yet another area not addressed by the Act. As rules addressing this question become available from the IRS and possibly individual states, we will update you.

Q. How will Employer Advantage be handling this for my company?

A. That will largely depend on which method of applying tax credits the IRS will allow. We are currently preparing and testing our system to accommodate either methodology. EA will mirror the IRS's timing and method of applying tax credits. Our goal is to minimize any administrative burden you would otherwise have, and to pass the credits for wages and costs paid directly back to you at the time they are available to us from the IRS.