On Wednesday, March 18, 2020, the U.S. Senate voted to approve H.R. 6102, The Families First Coronavirus Response Act, that was passed by the U.S. House of Representatives over the weekend and was subsequently signed into law by President Trump. The Act guarantees free testing for the novel coronavirus (COVID-19), establishes emergency paid sick leave, expands family and medical leave, enhances unemployment insurance, expands food security initiatives, and increases federal Medicaid funding.
COVID – 19 Testing
The Act requires private health plans to provide coverage for COVID-19 diagnostic testing, including the cost of a provider, urgent care center and emergency room visits in order to receive testing. Coverage must be provided at no cost to the consumer. Group health plans — either self-funded or insured — and individual health insurance plans, including those grandfathered under the Affordable Care Act (ACA), must cover approved diagnostic tests as well as health care provider office, urgent care center, telehealth, or emergency room visits that result in orders for diagnostic testing insofar as the services received during the visit relate to testing or determining the need for testing. The coverage cannot impose cost-sharing (i.e., deductibles, copayments, and coinsurance) and cannot be subjected to prior authorization or other medical management requirements. If the visit does not result in a COVID-19 test, or provides services unrelated to COVID-19 testing, it can be subject to cost-sharing or perhaps not even be covered. These requirements start at the date of enactment of the Response Act and last through the duration of the national COVID-19 emergency.
Emergency Paid Sick Leave (EPSLA)
The Act includes up to 80 hours of emergency paid sick leave for workers who are unable to work due to the following reasons as a result of COVID-19:
- The employee is subject to a Federal, State or local quarantine or isolation order
- The employee has been advised by a healthcare provider to self-quarantine due to concerns related to the virus
- The employee is experiencing symptoms of the virus and seeking a medical diagnosis
- The employee is caring for another individual who falls into categories 1 or 2, above
- The employee is caregiving for a child of the employee if their school or place of childcare has been closed or is unavailable due to the virus
- The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services
The mandatory paid leave provisions apply to employers with fewer than 500 employees and government employers, with exceptions for health care workers and first responders. Self-employed individuals would be eligible for the new benefits provided under the Act. It is not clear if individuals who have self-employment income from their partnership or limited liability company would be eligible for the new self-employed benefits, as the Act does not specifically address those situations. Employers with 500 or more employees would not be subject to those rules. Employers who are required to provide paid time off would need to initially bear the costs of paying their employees, but the federal government would provide payroll tax credits to help cover those costs.
Emergency Family Medical Leave Expansion Act
The Emergency Family Medical Leave Expansion Act (EFMLEA) applies to all businesses with fewer than 500 employees and is an expansion of the Family and Medical Leave Act of 1993 (FMLA). This provision expands employee qualifications for leave.
Under this provision, an employee can qualify after working for their employer for at least 30 days if the employee is unable to work (or telework) due to a need to care for a child under the age of 18 if their school or place of childcare has been closed or is unavailable due to a public health emergency related to COVID-19.
The EFMLEA provides for 10 days of unpaid leave. After the first 10 unpaid days of EFMLEA leave, (for which employees may use any other paid time off or the 80 hours of paid sick time provided by the EPSLA), employers must pay employees no less than 2/3 of the employee’s regular rate for his or her usual hours worked. The benefits under the Act are limited per employee to $200 per day and $10,000 in total. Notably, the current version of the EFMLEA removed the previous requirement included in earlier drafts that employers provide 10 weeks of paid leave. Instead, the current draft substituted the $10,000 cap on total benefits.
For part-time or employees who work variable hours, the leave is calculated based on the average hours that the employee was scheduled per day over the six month period prior to the employee taking leave under the Act. If the employee did not work over the previous six months, benefits are calculated based on a reasonably expected average hours per day that the employee would normally be scheduled to work at the time of hiring.
As with the EPSLA, The Secretary of Labor may provide exemptions to employers with fewer than 50 employees if providing leave to employees would jeopardize the viability of the business as a going concern, as well as allowing employers of healthcare workers or first responders to exclude their employees from benefits under the Act.
Currently, the federal Family Medical Leave Act of 1993 (FMLA) provides eligible employees up to 12 work weeks of unpaid leave a year and requires group health benefits to be maintained during the leave as if employees continued to work instead of taking leave. Employees are also entitled to return to their same or an equivalent job at the end of their FMLA leave. Special rules apply to military personnel.
To be eligible for FMLA, an employee is required to have been employed by their employer for a year, worked for 1,250 hours, and worked in a location where there are 50 other employees within a 75-mile radius. The FMLA applies to all private sector employers who employ 50 or more employees for at least 20 workweeks in the current or preceding calendar year (including joint employers and successors of covered employers). Many states have enacted laws that are similar to federal FMLA, which apply to smaller employers who may be exempt from federal FMLA. The FMLA also applies to federal, state and local employers. These current provisions remain available for qualifying employees.
Payroll Tax Credits
The Act creates new, refundable payroll tax credits for employers to help cover the costs of this new paid sick and family leave. To assist employers who are required to provide emergency paid sick leave or FMLA leave under the programs described above, the Act provides for a refundable tax credit applicable against the employer’s portion of Social Security or Railroad Retirement Tax Act (RRTA) tax for amounts paid under those programs. The credit is equal to 100% of the compensation paid in each calendar quarter to employees who are not working for the reasons enumerated above, subject to the following limitations:
For payments to an employee who needs time off for self-isolation, diagnosis, or care of a COVID-19 diagnosis, or compliance with a health care provider’s recommendation or order, the credit is capped at $511 of eligible wages per employee per day. For payments to an employee who needs time off to care for a family member who has been exposed to or diagnosed with the COVID-19, or a child under age 18 whose school or place of care has been closed, the credit is capped at $200 of eligible wages per employee per day. The credit for emergency paid sick leave wages is only available for a maximum of 10 days per employee over the duration of the program. For expanded FMLA, the credit is capped at $200 of eligible wages per employee per day and $10,000 for all calendar quarters.
Both of the credits are increased by any amounts paid or incurred by the employer to maintain a group health plan, to the extent those expenses are (1) excluded from the employee’s gross income under the tax code and (2) “properly allocable” to the respective qualified sick or FMLA wages required to be paid under the Act. The exact method of allocation will be provided by regulation at a later date, but the Act provides that the allocation will be treated as properly made if done “on the basis of being pro rata among covered employees and pro rata on the basis of periods of coverage.”
If the credit exceeds the employer’s total liability for Social Security or RRTA tax for all employees for any calendar quarter, the excess is refundable to the employer. The employer may choose not to apply the credit. Further, to prevent a double benefit, the employer cannot obtain a deduction for the amount of the credit. In addition, employers may not receive the credit in connection with wages for which a credit is allowed under Section 45S (credit for paid family and medical leave).
Similar rules apply to a self-employed individual that allow a refundable tax credit against the individual’s self-employment tax. The credit is capped at the lesser of the amounts that apply to eligible wages per employee or the individual’s lost self-employment income. The House-passed version of the Act provides guidance on how to determine the individual’s lost income due to the corona virus.
Notably, required payments for emergency paid sick leave or FMLA under the Act will not be considered wages for purposes of calculating the employer’s portion of the Social Security or RRTA tax. In addition, the tax credits available to an employer are increased by the amount of the employer’s liability for Medicare tax on wages paid under the Act, effectively exempting the emergency sick leave and FMLA payments from that tax as well. In this way, the Act provides employers with two tax benefits: (1) refundable credits against the employer’s portion of Social Security or RRTA tax; and (2) an exemption from, or credit against, the employer’s portion of Social Security or RRTA and Medicare taxes on the wages required to be paid under the Act.
However, the law does not exempt these payments from the definition of wages for the purpose of other taxes (including the employee’s portion of Social Security, RRTA and Medicare taxes).
The Act ensures there is no negative impact to the Social Security program caused by the tax credit or the exemption of sick pay and family leave pay from Social Security tax by authorizing a transfer of funds from the General Fund to the Social Security and disability insurance trust funds to replace the lost employer contributions. The tax provisions discussed herein will apply beginning on a date to be determined by the Secretary of the Treasury after the enactment of the Act and ending on December 31, 2020.