More On The FFCRA: Payroll Tax Credits And Period Of Non-Enforcement

As we told you on March 22, 2020, the Department of Treasury (DOT), Internal Revenue Service (IRS), and Department of Labor (DOL) announced plans to provide some relief for small and midsize employers in light of the recently passed Families First Coronavirus Response Act (FFCRA). In their announcement, it was also stated that employers may make immediate use of their tax deposits to pay employees taking emergency leave under the Emergency Family and Medical Leave Act (E-FMLA) or as Emergency Paid Sick Leave Act (E-PSLA). The DOL further announced that it would not bring any enforcement actions against employers for any violations within the first 30 days the law is in effect, provided the employer can show it is acting in good faith to comply with the new law.

Use Of Tax Deposits/Payroll Tax Credits:

Generally, when employers pay their employees, they are required to withhold various taxes, such as federal income, Social Security, and Medicare taxes. Employers are then required to deposit these taxes, along with the employer’s share of Social Security and Medicare taxes, with the IRS. The announcement stated that employers who pay qualifying emergency leave under the E-FMLA or E-PSLA, will be able to retain a portion of these payroll taxes, equal to the amount of emergency leave paid. If there are not sufficient payroll taxes to cover the cost of the emergency leave, the announcement stated that employers will be able file a request for an accelerated payment from the IRS.

The IRS provided the following examples:

  • If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.
  • If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.

We expect the details of this new procedure to be announced sometime this week.

Non-Enforcement Period:

The announcement further clarified that the DOL was issuing a temporary non-enforcement period, and providing employers with 30-days to come into compliance with the Act. During this time, the DOL stated that it intends to provide employers with “compliance assistance.” In doing so, the DOL made clear that the brief period of adjustment was only available to employers acting “reasonably and in good faith.” Employers should use this time to work with legal counsel to make sure they are in compliance with the new Act.

We are watching for the issuance of more formal guidance, and we will provide an update at that time. If you have any questions in the meantime, please do not hesitate to reach out to any of our Labor and Employment attorneys for guidance.