DC Tax Flash: IRS Advises on Tax Credits for Paid Leave

Tax Alert
03.20.2020

The Internal Revenue Service (IRS) and Department of Labor today issued informal guidance on the tax credits for paid sick and paid family and medical leave enacted as part of the Families First Coronavirus Response Act (P.L. 116-127). The provision covers firms with fewer than 500 employees and includes exemptions for certain businesses with less than 50 workers.

"To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes," the IRS explains. "If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week."

Today's announcement also previews forthcoming guidance to be issued next week, explaining:

Under guidance that will be released next week, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.

The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.

If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced next week.

​The full text of today's announcement is posted here.

A Joint Committee on Taxation explanation of this provision is posted here.

The full text of the Families First Coronavirus Response Act as signed into law is posted here


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