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Tax Obligations and Credits for Governmental Employers Under the FFCRA
As employers prepare to implement the provisions of the Families First Coronavirus Response Act (FFCRA), we have received a number of questions regarding the application of the tax credit provisions to governmental employers. While the paid leave credits provided under the FFCRA do not currently apply to governmental employers, the FFCRA does provide governmental employers, such as counties, cities, towns, villages and school districts, with limited relief in that governmental employers are not required to pay the 6.2% share of Social Security taxes on the paid leave required by the FFCRA.
Paid Leave Credits
By way of background, the FFCRA requires all governmental employers with at least 1 employee to provide up to 80 hours of paid sick leave for certain absences. The reasons for paid sick leave covered by the FFCRA are addressed in more detail in this client alert. The dollar value of the leave depends on the reason for leave. If the employee is absent for the employee’s own health reasons covered by the FFCRA, then the value of the leave is equal to the lesser of the employee’s daily wage or $511 per day. If the employee is absent to care for a family member or child, then the value of the leave is the lesser of two-thirds of the employee’s daily wage or $200 per day.
The FFCRA also expands the FMLA to cover absences to care for a child due to the closure of a school or a childcare provider. While the first two weeks of such leave need not be paid, unless an employee substitutes other paid leave, the remaining 10 weeks of such leave must be paid in an amount equal to the lesser of two-thirds the employee’s daily wage or $200 per employee, per day, to a maximum of $10,000 per employee.
Under the FFCRA, private sector employers are generally afforded a tax credit equal to the value of the required paid leave, in addition to certain health insurance costs that the employer provides under the new leave requirements. The IRS has indicated the credit is taken by allowing employers to retain amounts withheld from all employees for federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes.
These paid leave credits do not currently apply to governmental employers.
Employer Social Security Taxes
Although governmental employers do not qualify for the tax credits, any paid leave required under the FFCRA is excluded from the definition of “wages” for purposes of an employer’s, including a governmental employer’s, Social Security tax obligations. This means governmental employers are not required to pay the 6.2% share of Social Security taxes on paid leave taken under the FFCRA.
Employee Social Security Withholdings
Employers should still withhold the 6.2% from paid leave taken under the FFCRA for the employee share of Social Security taxes. The FFCRA only exempts the paid leave amounts from the employer’s Social Security tax obligation.
Employee and Employer Medicare Tax Obligations
Similarly, the employee withholding obligation for Medicare taxes does apply to paid leave required under the FFCRA. As a result, governmental employers will want to withhold Medicare taxes, which is 1.45% in most cases, from paid leave taken under the FFCRA. Governmental employers are also still required to pay the 1.45% employer share of Medicare taxes on leave taken under the FFCRA.
Separately, governmental employers must also be mindful of their WRS obligations. Paid leave required by the FFCRA is considered wages for WRS purposes. Therefore, the employee and employer share of WRS contributions must be made on paid leave taken under the FFCRA.
This Client Alert is limited to the FFCRA. We continue to monitor legislative and regulatory developments, including new legislation passed by the Senate called the CARES Act. We will provide additional Client Alerts regarding the CARES Act and other developments.
If you have any questions or concerns regarding the notice or need assistance in identifying the best possible ways to ensure compliance with the notice requirement, please contact Matthew Flanary at firstname.lastname@example.org or (262) 364-0253 or Brett Schnepper at email@example.com or (262) 364-0262 or your Buelow Vetter attorney.