Knowing When To Claim The Credit For Paid Sick Leave As An Employee

Since the start of the COVID-19 pandemic in early 2020, both people and businesses have been severely affected by it. As part of the Covid relief plan, the United States government enacted the Families First Coronavirus Relief Act (FFCRA) on March 18, 2020. Under this law, employers, from small and medium enterprises to large corporations, were required to allow paid sick leave or family leave to employees for reasons related to the ongoing pandemic. These employers, too, were provided benefits in the form of refundable tax credits. The refundable tax credits can be claimed to cover the cost (up to a certain limit) of providing the leaves to employees for COVID-19-related reasons. In this article, we will discuss the details of sick leave tax credit and the method of claiming credit for implementing the paid time off policy.

Sick Leave And Family Leave Credit

Employers that provided qualified sick or family leaves to their employees between April 1 2020 and December 31 2020, could claim a refundable tax credit for the specified leaves. This is true for both large corporations, as well as small and medium enterprises. The credits of both the leaves can also be combined. This means that the employer can claim the tax credit for wages paid for up to a total of 12 weeks (10 weeks of family leave and 2 weeks of sick leave). Let us now look at these credits individually.

Paid Sick Leave Credit

The eligible employer can claim a paid sick leave credit at the regular pay rate of the employee. This can be up to $522 on a per-day basis or a total of $5,110 for 80 hours. This is applicable if the employee was not able to work because of the following reasons:

• They were under COVID-19 isolation and quarantine order.
• They were under self-quarantine because of COVID-19.
• They had the COVID-19 symptoms and sought a medical diagnosis of it.

In another scenario, the employer can claim a paid sick leave credit for 2/3rd of the regular pay rate of the employee. This can be up to $200 on a per-day basis or a total of $2,000 for 80 hours. This is applicable if:

• The employee was caring for a COVID-19 affected patient under isolation, quarantine, or self-quarantine orders.
• The employee was taking care of a child who could not go to a school, as it may be closed because of COVID-19.
• The employee was taking care of a child who did not have a childcare provider (because of COVID-19)

Family Leave Credit

An employer can claim paid family leave credit for 2/3rd of the regular pay rate of the employee. This can be up to $200 on a per-day basis or a total of $10,000. This is applicable if:

• The employee is taking care of a child who cannot go to a school/place of care, as it may be closed due to COVID-19.
• The employee is taking care of a child who does not have a childcare provider (because of COVID-19)

How To Claim The Tax Credit For Paid Sick And Family Leave?

For claiming the refundable tax credit for the paid time off, the employers need to report the total leave wages provided to the employees in each quarter of their financial calendar. Of course, for assistance, they can hire a financial accountant. This has to be reported in the tax returns of federal employment, which is usually the Form 941 – Employer’s Quarterly Federal Tax Return. Besides this, they can also report the total leave wages in Form 941 for claiming the Employee Retention Credit, which is applicable under the CARES Act. Form 941 is basically used for reporting the social security, Medicare taxes, and income an employer withholds from an employee’s wages. Besides this, it also takes into account the employer’s quota of the Medicare and Social Security taxes.

Qualified employers can prepare for receiving the tax refundable credit in the following ways:

1. They can access the federal employment taxes. This would also include the withheld taxes, which are usually supposed to be deposited by the IRS.
2. They can request the IRS for an advance of a certain specific amount from the credit. For this, the employer would need to fill out Form 7200 – Advance Payment of Employer Credits Due to COVID-19.
3. Employers can also defer their tax deposits and their share of the social security taxes (Section 2302, CARES Act)
4. Employers can also defer the process of withholding (and payment) of the employee’s social security taxes. This is applicable to the wages that were paid between September 1 2020 and December 31 2020.

The employer, from businesses around the world, including companies in Denver, can receive the paid sick leave credit in full amount, in addition to the related expenses on health plans and also their quota of Medicare tax for the leave. Qualified employers can reduce their tax deposits for federal employment in preparation for the refundable tax credit. The employer can also place a request for advance payment of these credits for any amount that has not been covered by the process of reducing their deposits. This advanced payment is usually issued to the employers through a paper check.