U.S. Treasury, IRS, and U.S. Department of Labor Issue Guidance on FFCRA Tax Credits

*Updated April 14, 2020*

As described in a prior client alert analyzing the Families First Coronavirus Response Act (“FFCRA”), there are a number of refundable tax credits available to employers to offset the cost of 100% of Emergency Sick leave, 100% of Emergency FMLA, and an employer’s expenses to provide and maintain a group health plan that are allocable to qualified Emergency Sick Leave wages and Emergency FMLA. 

Formal regulations regarding the FFCRA have not yet been issued, but the U.S. Department of the Treasury, IRS, and the U.S. Department of Labor have issued preliminary guidance regarding how the refundable tax credit provisions of the FFCRA will be implemented.  That guidance is linked in the preceding sentence.  Key points from that guidance include:

• Available tax credits are subject to the daily and aggregate limits for applicable leave as set forth in the FFCRA and discussed in a prior alert.
• The IRS has issued guidance describing tax credits under the FFCRA and CARES Act, generally available against an employer’s portion of Social Security and Medicare taxes.  That guidance is inconsistent with earlier statements regarding deductions from Emergency Paid Sick Leave and Emergency FMLA, and does not address the exclusion of  Emergency Paid Sick Leave and Emergency FMLA payments from the definition of “wages” for purposes of the employer’s side of Social Security taxes (IRC §3111(a)) as set forth in section 7005 of the FFCRA.  The text of Section 7005 of the FFCRA expressly states that wages paid on account of Emergency Paid Sick Leave and/or Emergency FMLA are not “wages” for purposes of IRC §3111(a).  Attorneys, accountants, and payroll companies are grappling with interpreting and implementing the law, faced with guidance that often conflicts.  Until subsequent guidance expressly addresses section 7005, the text of that section provides authority for an employer to not deduct an employer’s share of Social Security taxes from Emergency Paid Sick Leave and Emergency FMLA payments to employees, because such payments are not “wages” for purposes of that IRC §3111(a).   
• Employers can immediately set-off applicable FFCRA costs, dollar-for-dollar, against payroll taxes, reducing the amount payable quarterly to the IRS.
• An employer can off-set its applicable FFCRA costs against 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 an employer’s FFCRA costs exceed the relevant payroll taxes due, the employer can file for an expedited payment from the IRS for the overage. A streamlined claim form will be issued soon.
• There will be a 30-day non-enforcement period, so long as an employer acts reasonably and in good faith, during which time the Department of Labor will focus on compliance assistance.  However, under a prior bulletin from the Wage and Hour division of the Department of Labor, it appears that the 30-day non-enforcement period may run from enactment of the FFCRA, expiring on April 17, 2020.
  

As formal regulations are promulgated we will provide a detailed overview of supplements or changes to the preliminary guidance.

Our office is closed pursuant to the Governor’s Business Closure Order, but our attorneys are working remotely, available at any time via e-mail or cell phone.  Do not hesitate to contact us if you have questions regarding the FFCRA.  We are available to help you with any legal matter.