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Credits for COVID Sick Leave

One of the earliest changes that Congress enacted to cope with the COVID-19 pandemic was to require certain employers to provide paid sick leave for employees who miss work due to the disease. The government reimburses those payments with tax credits against employment tax deposits. It is important for employers who have made these sick leave payments to understand how the credits work and how they affect other new programs enacted to address the COVID-19 pandemic.

Requirement of Paid Sick Leave

The Emergency Family and Medical Leave Expansion Act require certain employers of eligible employees to pay emergency sick leave to eligible employees. The legislation defines the employers covered by the legislation, the maximum amount of required payments, and the eligibility of employees.

The companies covered by the legislation are those with fewer than 500 employees. Note that even though both this legislation and the SBA PPP loan program have a 500-employee limit, the two limits are not applied the same way. The limit for the sick leave rules applies the integrated employer test and the joint employer test under the FMLA rather than the SBA’s affiliation rules. Also, there are no exceptions based on business classifications. If the employer has closed the worksite due to COVID-19 restrictions, none of the employees qualify during that period of closure. Employers with fewer than 50 employees might be exempt from the rules if providing the sick leave would jeopardize the viability of the business.

To be eligible for the sick leave the employee must meet the following conditions:

  • The employee must have been employed for at least 30 calendar days by the employer.
  • The sick leave must be for a time period from April 2, 2020 through December 31, 2020.
  • The employee must take 10 days of unpaid time off or PTO before starting the time period in which the eligible sick leave begins.
  • Employees unable to work for one of the following reasons qualify for regular pay up to $511 per day and $5,110 in total:
    • The employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19
    • The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19
    • The employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis
  • Employees unable to work for one of the following reasons instead qualify for regular pay up to $200 per day and $2,000 in total:
    • The employee is caring for an individual who is subject to one of the above conditions
    • The employee is caring for a son or daughter under age 18 if the school or place of care of that child has been closed due to the COVID-19 precautions
    • Other substantially similar conditions specified by the Secretary of Health and Human Services

Employer Credit for Sick Leave

To the extent that an employer pays an employee for sick leave that is required under this legislation, the employer receives a tax credit against its employment taxes for the required payments. If the employer pays the employee amounts in excess of the amounts required by the legislation, that excess is not eligible for the tax credit.

Effect on PPP Loan Forgiveness

To the extent that wages are eligible for the employer credit for emergency sick leave payments, those wages are not eligible to count toward the PPP loan forgiveness. For example, if an employer paid an employee $10,000 during the forgiveness calculation period and $5,110 of those payments were eligible for the employer credit, the employer could only count $4,890 of wages for that employee toward the PPP loan forgiveness.

If you have any questions about PPP loans and this development, reach out to us at 303-989-7600.