Social Security & Payroll Tax Credits for Employers Under the CARES Act

Among the provisions of the CARES Act and other coronavirus-oriented legislation passed by Congress at the end of March 2020 are Social Security and payroll tax credits available to eligible employers for payments of Emergency Paid Sick Leave (EPSL) and Emergency Family Medical Leave Act (EFMLA) benefits.

Under the EPSL provisions, employers are required to provide up to 80 hours of paid sick leave to both full and part-time eligible employees (from date of hire) who, are unable to work (or telework) due to for reasons specified in the Act.

The available credit for Emergency Paid Sick Leave is 100% of the paid leave amount paid by employers as required, the payments, and therefore the credits, will vary by the reason for the leave.

An employer may pay more to an employee than what is required for benefits under EPSL, however only the maximum amount required to be paid by an employer is eligible for the tax credit.

For EFMLA, an employer is not be required to pay more than $200.00 per day and $10,000.00 in aggregate for each employee. Again, an employer may pay more to an employee than what is required, but only the maximum amount required to be paid by an employer is eligible for the tax credit.

Employers may take a credit of up to 100% of the employer-paid EFMLA leave required, but be careful… If an employer already provides paid FMLA benefits and takes a credit under Internal Revenue Code Section 45S, “double dipping is not allowed – the credit available under EFMLA is not available. Employers do, however, have the option to  opt out of IRC 45S on a quarterly basis.

In addition to the tax credits that may be taken for gross wages paid for EPSL and EFMLA, employers may also take tax credits for:

  • 100% of the applicable employer and employee Federal income taxes withheld, FICA and Medicare taxes
  • 100% of the paid employer contributions and employee pre-tax contributions for qualified healthcare expenses (there is no credit for employee post-tax contributions.

The EPSL and EFMLA payroll tax credits are available during each quarter from April 1, 2020 and ending December 31, 2020, and can be taken against federal tax obligations recorded on IRS Form 941, not just against those who have received emergency paid sick leave.

To file for the tax credit, employers should use IRS Form 941, but they can also receive credits by reducing their federal employment tax deposits; and if the credit is more than a tax deposit, employers can request an advance payment of their credit by filing IRS Form 7200.

The IRS has also made available a mechanism that allow employers to keep some tax amounts in order to make paying the costs of providing leave easier on cash flow.

The record keeping requirements and details about credits for FICA payments, payroll tax deferrals, and an employee retention tax credit provision in the CARES Act are substantial.

To download a more-in-depth analysis of the guidelines and requirements, click HERE. You can also download IRS Form 7200.