IRS Clarifies April 1 as Start Date for FFCRA Payroll Tax Credits

Employers with fewer than 500 employees can acquire payroll tax credits based on the amounts of paid leave they must provide from April 1 to Dec. 31, 2020, to employees under the Families First Coronavirus Response Act (FFCRA), the Internal Revenue Service said March 27.

The FFCRA (Pub. L. 116-127), which was signed March 18 by President Donald Trump, requires employers with fewer than 500 employees to provide employees with up to 80 hours of paid sick leave related to COVID-19 and up to 10 weeks of paid public health emergency leave under an expansion of the Family and Medical Leave Act if the employees fulfill eligibility conditions for these types of paid leave.

The amounts of these types of paid leave granted to such employees may be credited against the employer portion of Social Security tax, which is imposed by Internal Revenue Code Section 3111(a), the IRS said in Notice 2020-21. The texts of the FFCRA and Notice 2020-21 do not identify the employee portion of Social Security tax imposed by I.R.C. Section 3101(a), the employee portion of Medicare tax imposed by I.R.C. Section 3101(b), and the employer portion of Medicare tax imposed by I.R.C. Section 3111(b) as taxes against which the amounts of paid leave required to be paid under the FFCRA may be credited.

The general effective date of the provisions of the FFCRA was identified in the law as a date “during the 15-day period beginning on the date of the enactment of this Act,” and while April 2 is 15 days from the enactment date of March 18, the Labor Department announced in FFCRA Questions and Answers released March 24 that employers required under the FFCRA to provide these types of paid leave must do so starting April 1 for eligible employees. The IRS decided to match the Labor Department’s determined effective date of April 1, Notice 2020-21 said.

The tax credits against the employer portion of Social Security tax for amounts of these types of paid leave are refundable, and so if the amount of a credit for which an employer would be eligible for a quarter exceeds the amount of the employer portion of Social Security tax that the employer otherwise would need to pay for the quarter, the excess can be treated as a refundable overpayment.

The notice specifies that the refundable tax credits made available by the FFCRA for these types of paid leave are available “for most employers with fewer than 500 employees.”