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March 19, 2020

Trump Signs Phase 2 COVID-19 Emergency Legislation

Tax

President Trump signed into law on March 18 the Families First Coronavirus Response Act (the Act), which will provide paid sick and family leave assistance due to illness, as well as food assistance and medical testing assistance. The Senate passed the bill earlier the same afternoon, where Senate Majority Leader Mitch McConnell (R-KY) said any shortcomings the Senate saw in the bill would be addressed in the next phase of coronavirus legislation.
 

Status of Emergency Legislation

The Act represents “Phase 2” of emergency legislation that responds to the coronavirus pandemic, with an additional round of legislation under present negotiation. The following chart summarizes each phase of planned or enacted legislation:

 

 
Phase 1

H.R. 6074: $8.3B measure signed into law March 6. Provides funding to develop vaccines and testing kits, additional state and local health department staffing and laboratory equipment needs, and federal aid for international containment.
 
Phase 2

H.R. 6201: $104B measure signed into law March 18. Provides paid sick and family leave (and offsetting employer payroll tax credits) for coronavirus and related care for others, food assistance, medical testing assistance, and additional unemployment benefits.
 
Phase 3

Senate negotiations for approximately $1T in economic relief measures that would provide $250B in small business loans, $500B in direct cash payments to individuals in the form of two $1,000 rebate checks, and $50B financial assistance to the airline industry.
 

 
The Act is the most recent legislation to be enacted, and contains a number of important relief measures.
 

Nontax Provisions of the Act

The Act includes measures to reduce barriers to those who may need food assistance, including:

 

  • the continuation of free or reduced price school lunch programs where schools are closed more than 5 consecutive days,
  • a suspension of the work requirements to be eligible under these school lunch programs,
  • additional benefits for vulnerable communities such as members Native American Tribes,
  • home-delivered nutrition services for elderly Americans, and
  • nutrition services at adult day care centers and meal sites.

The Act also guarantees free testing for the virus regardless of whether the individual has insurance. For those with insurance, the Act guarantees that they will not incur any out of pocket costs for coronavirus testing. Additionally, the Act provides additional funds to strengthen unemployment benefits, including additional funding for states that see large unemployment increases. These benefits are seen as an important measure to ensure that the closures of schools, businesses, and travel have a limited effect on the economy.
 

Paid Sick Leave and Associated Tax Credits

The Act also contains significant provisions regarding a federal paid leave program. This new program has two components, each with its own corresponding tax credit. These components were the subject of technical corrections, which significantly curtailed the nontax provisions of the program (discussed below).

The first component of the program mandates paid sick leave for employees who are unable to work under any of the following conditions:

 

  • Exhibition of coronavirus symptoms, including time to seek a medical diagnosis;
  • A medical diagnosis is made for coronavirus;
  • A health-care provider advises a self-quarantine;
  • A federal, state, or local quarantine or isolation order is issued; or
  • Care is necessary for another individual who is in quarantine, or for a child under the age of 18 affected by a school or daycare closure on account of coronavirus (including adopted and step-children, and children for whom the individual is the legal guardian).

Only private sector employers with fewer than 500 employees (and government entities) are subject to the paid sick leave program. This includes not-for-profit employers. Small businesses with fewer than 50 employees may be exempt if the program would jeopardize the viability of the business as a going concern. Full-time employees eligible for mandatory paid sick leave will receive 80 hours (i.e., two weeks, or 10 business days) of pay; part-time eligible employees will receive pay equivalent to their scheduled or normal work hours during the two week period. The pay rate under any of the first four conditions described above must be equal to the employee’s regular rate or the local minimum wage (if greater), not to exceed $5,110 ($511 per day). In the case of the fifth condition described above, the pay rate is two-thirds of the employee’s regular amount, not to exceed $2,000 ($200 per day).

To offset the cost of the paid sick leave program, employers will be able claim a refundable payroll tax credit. The amount of the employer’s refundable credit is equal to the applicable per-employee daily benefit ($511 or $200), not to exceed the applicable per-employee cap ($5,110 or $2,000). Prior to the technical corrections legislation, there were no dollar caps on the paid sick leave itself, so the tax credits may not have offset all of the paid sick leave that an employer was obligated to provide. The final bill creates parity between the amount of paid sick leave and the associated tax credit, but it significantly reduced the potential sick leave benefits available to each employee.
 

Paid Family Leave and Associated Tax Credits

The second component of the program mandates paid family leave for an additional 10 weeks (i.e., 50 business days) to employees who are unable to work because they must care for a child under the age of 18 affected by a school or daycare closure on account of coronavirus. The first 2 weeks of such benefits are to be provided as paid sick leave, as previously discussed.

Under the original version of the bill passed by the House, eligibility for paid family leave would have included leave taken by the employee due to the employee’s own illness or for care provided to a child, a parent, a spouse, a domestic partner, or any other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship. Coverage under this original version would have also applied to situations where a family member contracted the virus or who was self-isolating under the same rules as the employee provisions described above. However, the final bill significantly narrowed the eligibility criteria for paid family leave to include care provided to a child, as mentioned above.

Only private sector employers with fewer than 500 employees (and government entities) are subject to the paid family leave program. Again, not-for-profit entities are included. An employer may require that the first 10 days of an employee’s absences on account of care for a child to be unpaid, unless the first 10 days are covered by the paid sick leave program under the Act, or unless the employee substitutes accrued vacation leave, personal leave, or accrued medical or sick leave otherwise provided. The rate of pay for paid family leave is two-thirds of the employee’s regular amount, not to exceed $10,000 ($200 per day).

As with the paid sick leave program, employers can offset the cost of the paid family leave program with a refundable payroll tax credit. The per-employee credit is limited to $200 per day, not to exceed $10,000 per employee.
 

Other Details for Paid Sick and Paid Family Leave Programs

There are a few important notes about each of these programs. Each program also applies to self-employed individuals, with the tax credit being the smaller of the self-employed individual’s average daily income or the limitations described above. Also, both of these programs will expire on Dec. 31, 2020.

As noted previously, private sector employers with fewer than 500 employees are required to provide the described program benefits, unless an exception applies. One exception previously noted involves an employer with under 50 employees, if the program would present a hardship that would interfere with the employer’s ability to continue as a going concern. There is another exception for health care employers, who can exempt certain employees from the paid sick leave provisions. This is permitted even if the health care employer has more than 50 employees.

The tax credits available under each program are increased to include amounts employers pay for health plan coverage while an employee is on covered leave.
 

Path Forward

The technical corrections to the Act conceivably increase the risk that employees who have been exposed to the virus will return to work, instead of remaining home to care for their families or themselves. However, the Act provides meaningful assistance to those coping with the coronavirus. As noted, this is not the only legislation aimed to help Americans amid the coronavirus pandemic. The Trump administration announced March 17 that it is working with Congress to provide two rounds of $1,000 payments to all individuals, as part of the “Phase Three” emergency legislation to help combat the economic and financial pressures brought about by the coronavirus pandemic.

Should you have any questions concerning the paid sick and family leave legislation, please contact your local CBIZ tax professional.

 

 

2019 Individual Tax Planning Supplement


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