Client Alert

PH COVID-19 Client Alert Series: When Can Employers Claim Payroll Tax Credits For Coronavirus-Related Leave?

March 26, 2020

By Stephen Turanchik, Joseph Opich, Michael Rosella & Lauren Smith

Click here to read more from our Coronavirus series.

On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (“FFCRA”). The Act provides that employees at companies with fewer than 500 employees may take paid sick and family leave for reasons related to the COVID-19 pandemic. To compensate employers for providing this newly-mandated paid leave, the Act grants employers a 100 percent payroll tax credit, permitting employers to retain amounts otherwise payable in federal payroll taxes. This 100 percent payroll tax credit is augmented by an accelerated tax credit payment, which employers may claim by filing with the IRS. Treasury expected to issue formal guidance implementing the Act is in the coming days.

For a detailed discussion of the paid leave and payroll tax credit provisions of the Act, see PH COVID-19 Client Alert: Employers May Qualify for Significant Tax Credits and Government Reimbursements to Cover Paid Coronavirus-Related Leave.

The stated effective date of the paid leave provisions of the Act is “not later than 15 days” after enactment—on or before April 2, 2020.

However, in News Release IR-2020-57, which was published on March 20, 2020, the IRS stated:

  • Today the U.S. Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of Labor (Labor) announced that small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees.

Emphasis added. This language would seem to suggest that employers could begin claiming the tax credits for the cost of providing Coronavirus-related leave as of March 20, 2020. However, taxpayers have also been advised that they cannot rely upon IRS Publications, News Releases or Frequently Asked Questions.

On March 24, 2020, the U.S. Department of Labor has published Frequently Asked Questions that provides that the FFCRA’s paid leave provisions are effective on April 1, 2020, and apply to leave taken between April 1, 2020, and December 31, 2020.

Treasury has indicated that the credit will only be available to compensate leave paid after the effective date that it will set in forthcoming guidance.

Click here to read more from our Coronavirus series.

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