United States: Tax Credits Under FFCRA And The CARES Act

This general guidance is based on U.S. federal employment law and the current medical assessment of COVID-19. State and local laws may apply, and medical assessments may change, resulting in different conclusions.

Question 1. What tax credits are available under the FFCRA?

Answer 1. Employers are entitled to take payroll tax credits for mandatory paid leave payments made under the FFCRA for leave taken under the Emergency Paid Sick Leave Act or the Emergency Family and Medical Leave Expansion Act (EFMLEA) for the period from April 1, 2020, through and including December 31, 2020. Each quarter, employers are entitled to a refundable tax credit equal to 100 percent of the qualified leave wages paid under the EPSLA and the EFMLEA to eligible employees, plus qualified health plan expenses allocable to those wages and the employer's share of the Medicare tax on those wages. Employers are not subject to the employer portion of Social Security tax on the EFMLEA and EPSLA wages. See response to question 5 in the Health Coverage FAQs.

Q2. What tax credits are available under the CARES Act?

A2. Under the CARES Act, employers are required to a refundable credit against the employer component of employment tax (Social Security and Railroad Retirement), equal to a maximum of 50 percent of qualified wages paid after March 12, 2020, through December 31, 2020. The credit is in addition to the tax credit available under the FFCRA, but may not be claimed on the same wages. While the tax credit under the FFCRA relates to wages (and related health care costs) for employees on mandatory paid leave due to COVID-19, the tax credit under the CARES Act relates to wages (and related health care costs) paid to employees when the employer has fully or partially suspended its business operations, or has had a significant decline in its gross receipts, due to the COVIC-19 pandemic. For employers with over 100 employees, the credit may be claimed only for those employees who are unable to provide services due to the employer's suspension of operations or decline in gross receipts. The cap on this credit is $5,000 per employee. Please see our recent blog post.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.