How Employers and the Self-Employed Can Determine COVID Sick Leave Pay Tax Credits

Most businesses with fewer than 500 employees are required to implement the sick leave portions spelled out in Families First Coronavirus Response Act. And if you’re an eligible employee under FFCRA, you can likely claim a fully refundable tax credit for that leave.

If your business falls under the FFCRA rules, you can claim a tax credit equal to 100 percent of the qualified sick leave wages you pay out. Plus, you can also claim credit for allocable qualified health plan expenses and your company’s share of the Medicare tax on those applicable leave wages.

The amount you’ll need to pay for sick leave depends on the reason your employee can’t work. It also depends on:

• How long your employee is absent.
• Your employee’s hours.
• Your employee’s typical rate of pay or — if it’s higher — the federal minimum wage or any applicable state or local minimum wage.

Under the FFCRA those who are self employed are also eligible for a similar credit if — according to the IRS — “the self-employed individual would be entitled to receive paid sick leave under the [Emergency Paid Sick Leave Act] if the individual were an employee of an employer (other than him or herself).a

According to the IRS website, “average daily self-employment income is an amount equal to the net earnings from self-employment for the taxable year divided by 260. A taxpayer’s net earnings from self-employment are based on the gross income that he or she derives from the taxpayer’s trade or business minus ordinary and necessary trade or business expenses.”

Check out our COVID-19 Guide for Employers for more details about what qualifies as sick leave and how to calculate pay. And as always, reach out to us with questions.

This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.