Skip to Content
GeneralNewsAlerts

Using Withheld Payroll Taxes To Pay For COVID-19 Employee Paid Leave

March 23, 2020

Please note that this alert reflects information that was current as of March 22, 2020.

On March 18, 2020, the Families First Coronavirus Response Act (the “Act”) was signed into law, providing paid family leave and sick leave for employees affected by the Coronavirus. We previously covered the upcoming obligations of employers to provide paid family and sick leave under the Act.

The Treasury published a news release, IR-2020-57, describing the refundable payroll tax credits as “designed to immediately and fully reimburse” employers for providing the leave programs.

In the regular course of business, employers periodically withhold amounts from the paychecks of their employees for withheld federal income taxes, the employee’s share of Social Security taxes and the employee’s share of Medicare taxes (“Payroll Taxes”). Normally, employers pay Payroll Taxes to the IRS and file a quarterly payroll tax return.

Under the Act, eligible employers paying for qualifying sick or child care leave would be eligible for a payroll tax credit – instead of paying Payroll Taxes, an employer could retain (rather than pay to the IRS) an amount of Payroll Taxes to cover the cost of the paid leave. The employer would claim such amount as a credit on its payroll tax return. These credits are available to small and midsize employers.

The payroll tax credit is refundable, meaning that if Payroll Taxes are insufficient to cover the cost of the paid leave, the employer may file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less.

Employers can use the total Payroll Taxes withheld from all employees to pay for the qualified leave of affected employees.

Equivalent child care and sick leave credit amounts will be available to self-employed individuals under similar circumstances. Such credits will be claimed on their income tax returns and will reduce estimated tax payments (which are typically made quarterly).

Further guidance on the Act’s leave programs and tax credit is expected this week, the week of March 23.

For questions about this and other COVID-19 tax developments, please contact TJ Wilkinson or Bob Canter at Shulman Rogers.

MORE INFORMATION

The contents of this Alert are for informational purposes only and do not constitute legal advice. If you have any questions about this Alert, please contact the Shulman Rogers attorney with whom you regularly work or a member of the Shulman Rogers Tax Group.