Mandated Paid Leave Wages Tax Credit

May 29, 2020

Under the Families First Coronavirus Relief Act, employers with fewer than 500 employees are required to pay FMLA and sick pay leave to employees affected in specific ways by COVID-19. Eligible employers can then receive a refundable tax credit in the amount of FMLA and sick leave wages plus allocable qualified health plan expenses and the employer’s share of the Medicare tax on wages, paid from April 1, 2020, through December 31, 2020.

This credit can then be claimed as a refundable credit against an employer’s Social Security taxes for wages paid to all employees. If the amount of the credit exceeds the employer’s Social Security taxes on these amounts, then the excess is treated as an overpayment and refunded to the employer.

These wage amounts which reduce payroll taxes paid as a result of the credit are deductible in the year the wages are paid or incurred.  The tax credits are included in an employer’s gross income.  While deductible payroll taxes are usually reduced by the credits allowed, in this case, the credits are treated as government payments to the employer which are taxable and thus the employer can deduct its federal employment taxes before reduction by these credits.

To discuss mandated paid FMLA and sick leave or refundable employment tax credits, contact Deb Walker.

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