FFCRA Denies Tax Credits to State and Local Government Employers

March 26, 2020

As previously reported, on March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (FFCRA). The FFCRA’s paid leave provisions will become effective on April 1, 2020, and will apply to leave taken between April 1, 2020, and Dec. 31, 2020.

Although the FFCRA requires state and local government employers to provide emergency paid sick leave and emergency paid family leave to covered employees in some circumstances, it excludes state and local government employers from the tax credits and advances available to private employers and self-employed individuals under the new law.

The following is a summary of this unique issue that state and local government employers face under the FFCRA.

FFCRA Paid Leave Requirements

State and local governments are “covered employers” under both the emergency family leave and emergency paid sick leave provisions of the FFCRA, regardless of the size of their workforce. This means that all state and local government employers — counties, municipalities, school districts, water and wastewater, and industrial development authorities, etc. — are subject to the FFCRA’s paid leave requirements.

Specifically, beginning on April 1, 2020, state and local government employers must provide (1) eligible employees with up to 12 job-protected weeks of paid emergency family leave for qualifying COVID-19 reasons related to the inability to work or telework due to the closure of schools and/or unavailability of child care (albeit the first 10 days may be unpaid); and (2) all full-time and part-time employees with paid emergency sick leave in amounts required by the statute for the inability to work or telework due to six separate qualifying events (80 hours for full-time employees; equivalent of two weeks worth of part-time hours for part-time employees). 

FFCRA Tax Credits for Private Employers

The FFCRA provides private employers with refundable payroll tax credits to offset the cost of providing employees with paid leave under the statute. For paid emergency family leave, the amount of the credit is equal to 100 percent of the “qualified family leave wages” that the employer is required to pay. This dollar-for-dollar credit is capped at $200 per employee per day, up to a maximum aggregate amount of $10,000 per employee.  Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

For emergency paid sick leave, the amount of tax credit is capped at $511 per employee per day if the employee takes leave for reasons of quarantine, self-quarantine or symptoms/diagnosis, and at $200 per employee per day if the employee takes leave to care for a quarantined individual, for qualifying child care reasons or to care for an employee’s own substantially similar condition. FFCRA also provides tax credits for self-employed individuals who would be entitled to receive emergency paid sick leave if they had been employed by a third-party employer.

According to Internal Revenue Service (IRS) guidance, employers who pay qualifying family or sick leave will be able to retain an equivalent amount of payroll taxes rather than deposit them with the IRS.  If the employer’s provided paid leave exceeds its payroll taxes, the employer will be able to request an accelerated refund payment from the IRS.

State and Local Governments Not Entitled to FFCRA Tax Credits

Despite the provisions outlined above, state and local government employers are not entitled to the refundable tax credits that are available to private employers and self-employed individuals. Indeed, FFCRA specifically provides that the paid emergency family leave and paid emergency sick leave tax credits “shall not apply to the government of any State or political subdivision thereof, or any agency or instrumentality of any of the foregoing.” Thus, at least for now, FFCRA creates a new unfunded liability for state and local government employers.

For answers to questions or additional guidance on the effects of this new legislation, state and local government employers can contact the authors, any of the McGuireWoods COVID-19 Response Team or your McGuireWoods contact.