By: Todd Schanel, CFA, CPA, CFP®
on March 9, 2021

FFCRA-Coronavirus Relief-Paid Sick Leave-Paid Family Leave

Last March, the Families First Coronavirus Relief Act (FFRCA) was passed to help support employers and employees impacted by the pandemic. This act requires certain employers to offer paid sick leave and expanded family and medical leave related to the pandemic and offers refundable tax credits to employers. You can also take advantage of this if you’re self-employed, although the rules are different.

Note that the tax credit under the FFCRA is separate from the Employee Retention Credit provided in the CARES Act. Employers can take advantage of both, but not for the same wages.

Who does it apply to?

This credit is for private employers with fewer than 500 employees and certain public companies. Under the FFRCA, employers are required to offer employees up to two weeks of paid leave if the employee is sick or quarantined due to COVID-19, has to care for a family member who is sick with COVID-19, or has to care for a child due to school or daycare closures. For employees who have been on the job for at least 30 days, employers must also offer up to 10 weeks of paid leave to care for children due to school closures. The rules for offering COVID-19-related leave are on the DOL’s website.

What are the tax credits?

Employers will receive a refundable dollar-for-dollar tax credit as reimbursement for the cost of providing paid sick and family leave related to COVID-19. The total amount of the tax credit equals the paid leave amount plus the allocated employer cost for health insurance plus the employer portion of Medicare tax. Paid leave taken under the FFRCA is not subject to the employer portion of Social Security tax. The maximum amount of the credit depends on whether this is sick leave or family leave.

Sick leave: Under the FFRCA, sick leave is to be paid out at the employee’s regular rate of pay. The maximum tax credit is $511 per day or $5,110 in aggregate for a particular employee.

Family leave: Family leave is to be paid out at 2/3 of the employee’s regular rate of pay. The maximum tax credit is $200 per day. If the employee takes family leave to care for a sick family member, the maximum credit is $2,000. If the leave is needed due to school or daycare closures, the maximum credit is $10,000.

The FFRCA governs sick and family leave taken between April 1, 2020, and December 31, 2020. Legislation passed in late December extends the tax credits for leave taken through March 31, 2021. As of January 1, 2021, employers are not required to offer leave for COVID-19 reasons, but they may do so voluntarily.

How do employers take this credit?

This credit is claimed on an employer’s quarterly payroll tax report, Form 941. This is a refundable credit, so employers are allowed to reduce their federal tax deposits in anticipation of the credit with no penalties. More information about this credit is on the IRS website.

What if you’re self-employed?

The rules are slightly different if you are self-employed. The maximum amounts of the credit are the same:  $511 per day or $5,110 in aggregate for sick leave and $200 per day or $2,000 max to care for a family member, $10,000 max due to school or daycare closures. Partners who are considered self-employed are also eligible for this credit.

But since self-employed persons generally do not have a daily wage, the credit amount is based on a person’s average daily self-employment income for either the current year or the previous year. Average daily self-employment income is calculated as net income from self-employment divided by 260. The maximum credit for sick leave or for caring for a sick family member is ten days times the average daily self-employment income. The credit for leave related to school or daycare closures is limited to 50 days.

How do you claim this if you’re self-employed?

This refundable credit is taken on your 1040. Sick leave or family leave taken in 2020 will be claimed on the 2020 1040, and leave taken in 2021 will be claimed on the 2021 1040. You can reduce your estimated tax payments in anticipation of this credit.

What if you’re both self-employed and employed by a company?

In this case, you must reduce the credit for self-employed leave by any paid sick leave or family leave you receive from an employer.

You can find more information about this credit for self-employed taxpayers in a set of FAQs on the IRS website.

Schanel & Associates is a CPA firm specializing in accounting, tax, business valuation and litigation support serving Palm Beach, Martin and St. Lucie Counties and beyond since 1993. Our CPAs and accounting professionals work with individuals, businesses, estates and trusts to provide everything you need under one roof. For more information, contact us today at 561-624-2118.
Todd Schanel has been a principal at Schanel & Associates since 2004, where he specializes in financial planning, tax planning and consulting services. He also serves as Founding Principal and Director of Investment Advisory Services at Core Wealth Management, our sister company, where he leads an accomplished professional team offering independent and objective financial advice to help clients achieve their financial goals. Todd has been a CFA Charterholder since 2005, and in 2007 he earned his Certified Financial Planner® designation and became a licensed CPA. In 2015, he earned the Certified Valuation Analyst (CVA) designation.