When must small employers pay FFCRA COVID-19 sick leave?

Is a small employer required to pay sick leave under FFCRA because an employee with COVID-19 must quarantine? What if other employees must quarantine?

November 23, 2020

Q: Is a business required to pay sick leave to an employee who is ill with COVID-19? If so, can the business receive an FFCRA credit for the paid leave?

My client Bao owns a hardware store in our town. The business is an S corporation with eight employees including Bao. Her store manager, Arlo, received a positive COVID-19 diagnosis and is quarantined at home. At the moment Bao doesn’t know how Arlo’s recovery is going or how long he’ll be unable to work. Although Arlo was on vacation and not working in the store when he became sick, Bao and her family and the other employees are going to be tested as a precaution. Is Bao required to pay sick leave for Arlo and, if so, is she eligible for a tax credit? What if she or any of her employees are advised to quarantine too?

A: Under the FFCRA, a business with fewer than 500 employees is required to pay sick leave to employees who are ill with COVID-19 and for other coronavirus-related circumstances. Businesses are eligible for a credit for paying required sick leave.

Bao is required to pay sick leave for Arlo and could eventually be required to pay sick leave for other employees. Her business is eligible for a refundable credit for paying required sick leave. The FFCRA rules discussed here are effective April 1, 2020 through December 31, 2020.

FFCRA paid sick leave refundable credit for COVID-19

The Families First Coronavirus Response Act (FFCRA) requires covered employers to pay up to two weeks (80 hours) of sick leave to eligible employees.

Covered employers include private businesses and tax-exempt organizations with fewer than 500 employees and certain government employers. An eligible employee is an employee who is unable to work (or telework) because of COVID-19-connected circumstances:

  • The employee is under a quarantine or isolation order, or was advised by a health care provider to self-quarantine, or is ill and seeking a medical diagnosis, or
  • The employee is caring for an individual who is under a quarantine or isolation order, or who was advised to self-quarantine by a health care provider, or
  • The employee is caring for a son or daughter whose school is closed or whose child-care provider is unavailable.
    • The FFCRA also requires covered employers to provide up to 10 weeks of paid family leave if an employee must care for a child because of a closed school or daycare. A tax credit is also available for required family leave.
    • Businesses with fewer than 50 employees may be exempt from providing sick or family leave because of school or daycare unavailability.

Eligible full-time employees may receive up to two weeks (80 hours) of paid sick leave; part-time employees receive leave based on their recent work history. Leave for employees who are ill, advised to quarantine, or seeking a diagnosis is capped at $511 per day ($5,110 in total). Leave for employees who are caring for a family member is capped at two-thirds of the employee’s regular rate of pay, or if higher, the federal minimum wage or any state or local minimum wage, up to $200 per day ($2,000 total). Required sick leave is exempt from the employer (but not employee) portion of social security and Medicare taxes.

Arlo appears to be the only eligible employee right now, but it is possible that Bao or some of her employees could be advised to self-quarantine depending on their test outcomes or contact with Arlo.

See the Department of Labor’s FFCRA: Employee Paid Leave Rights for an overview of the paid leave requirements and IRS’s FAQs on how to claim the credits. See the Department of Labor’s FFCRA FAQs for information about FFCRA requirements and exemptions.

Claiming the FFCRA paid sick leave credit

Bao will receive credit for paying required sick leave on Form 941, Employer’s Quarterly Federal Tax Return. In anticipation of the credit, she can reduce her federal employment tax deposits, including deposits of withheld taxes, by the amount of required sick leave. For example, if her next required deposit is $10,000 and she paid $3,000 in required sick leave to Arlo, she can reduce her deposit to $7,000.

If required paid sick leave is more than available employment taxes, which could happen if more employees must quarantine, Bao can also request an advance credit by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. Note that an employer cannot double dip by seeking an advance and reducing deposits for the same required sick leave wages. The reduced federal deposits and any advances received are reconciled on Form 941 and any additional credit due will be paid as a refundable credit.

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