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Legislative update: U.S. House passes modifications to COVID-19 bill

U.S. House passes modifications to COVID-19 bill

The U.S. House of Representatives, last night March 16, 2020, passed, by unanimous consent, a resolution (H.Res. 904) modifying H.R. 6201, the “Families First Coronavirus Response Act”—a bill passed by the House on March 14 that includes temporary tax credits for certain employers and self-employed individuals for emergency paid leave.

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The resolution includes changes to both the tax and non-tax portions of the bill. Significant changes relevant to the bill’s proposed new tax credits include:

  • The definition of “qualified family leave” would be narrowed so that the new paid family and medical leave program and the associated tax credit generally would apply only with respect to employees who are unable to work or telework because they have children under age 18 years at home due to school or child care being closed or unavailable because of a public health emergency.
  • The definition of sick leave would be clarified, including to allow an employee to care for an individual (not solely a family member) who is quarantined.
  • The amount of the credits for required paid sick leave and family leave would be increased by so much of the employer’s qualified health plan expenses as are properly allocable to the qualified leave wages for which the credit is allowed.
  • The amounts of the credits with respect to the new sick leave and family leave programs generally would be increased by the employer portion of Medicare tax withheld for such sick leave and family leave wages.  

Notably, the bill as modified by last night’s resolution continues to reflect a “500 or fewer” standard for both the new family and sick leave programs and credits. In addition, the modified bill would impose dollar caps on the amounts of benefits available per employee under both new programs.

The staff of the Joint Committee on Taxation (“JCT”) has estimated that the tax credit provisions in H.R. 6201 would lose approximately $104.9 billion over two years.

Documents

  • Read text of H.R. 6201 [PDF 346 KB] (112 pages) that includes text of the resolution
  • Read technical explanation of the bill, provided by the JCT: JCX-10-20
  • Read a revenue estimate provided by the JCT: JCX-9-20  

Read about the bill passed by the House on March 14, 2020: TaxNewsFlash

This report briefly summarizes the tax provisions of H.R. 6201, as passed by the House and as modified by H.Res. 904.

Summary

The modified bill includes a variety of provisions relating to the coronavirus (COVID-19) crisis, including provisions relating to supplemental appropriations, unemployment insurance, and COVID-19 testing and other health provisions.

The bill provides for two new programs:  the Emergency Family and Medical Leave Expansion Act and the Emergency Paid Sick Leave Act. These two programs would be effective no later than 15 days after the date of enactment of the legislation.

Expanded Family and Medical Leave Expansion Act

Effective not later than 15 days after the date of enactment, the Emergency Family and Medical Leave Expansion Act would amend the Family and Medical Leave Act of 1993 (the “FMLA”) to create a new category of benefits available until December 31, 2020.  These benefits generally would apply in the case of a qualifying need related to the COVID-19 public health emergency.

Very generally, as a result of a modification made by last night’s resolution, a qualified need related to the public health emergency would mean the employee is “unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable, due to a public health emergency.” 

After an initial 10-day leave period (which may be unpaid), a qualifying employee generally would be entitled to 10 weeks of paid leave at two-thirds of the employee’s regular rate of pay for the number of hours the employee would otherwise be scheduled, or would normally be scheduled, to work. However, the modified bill provides that the paid leave requirement for an employee is limited to $200 per day and $10,000 in the aggregate.

For purposes of applying the new category of leave, the bill would modify the FMLA’s employer threshold by using a “fewer than 500 employees” standard. The Secretary of Labor would be authorized to provide exclusions for certain health care providers and emergency responders and to exempt small businesses with fewer than 50 employees in certain cases.

Special rules would apply in the case of employment under certain multi-employer bargaining agreements.

Emergency Paid Sick Leave Act

Effective not later than 15 days after enactment and through December 31, 2020, and subject to an exception for an employer election with respect to an employee who is a health care provider or emergency responder, the bill generally would require certain employers to provide to employees up to 80 hours (or the equivalent for part-time employees) of paid sick time because the individual is unable to work due to a need for leave because the employee:

  1. Is subject to a federal, state, or local quarantine or isolation order relating to COVID-19
  2. Has been advised by a health care provider to self-quarantine due to concerns relating to COVID-19
  3. Is experiencing symptoms of COVID-19 and is seeking a medical diagnosis
  4. Is caring for an individual who is subject to an order described in the first category above or has been advised by a health care provider as described in the second category above
  5. Is caring for a son or daughter of such employee if the school or place of care of the child is closed or the child’s care provider is due to COVID-19 precautions, or
  6. Is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretaries of Treasury and Labor.

The language of the above categories was modified by last night’s resolution.

In addition, under the modified bill, the required payment for sick leave would be limited to: (1) $511 per day and $5,110 in the aggregate in the case of the first three categories described above; or (2) $200 per day and $2,000 in the aggregate for the other categories.

This sick leave would be in addition to any regularly-provided annual sick leave.

The Emergency Paid Sick Leave Act provisions would apply to “covered employers” as well as certain other entities that are engaged in commerce (including government) or an industry or activity affecting commerce. For this purpose, the bill generally defines a “covered employer” as including a person engaged in commerce or in any industry or activity affecting commerce that, (1) in the case of a private entity or individual, employs fewer than 500 employees, and (2) in the case of a public agency or other entity, employs one or more employees.

Special rules would apply in the case of employment under certain multi-employer bargaining agreements.

Further, the Secretary of Labor would have authority to provide exclusions for certain health care providers and emergency responders and to exempt small businesses with fewer than 50 employees in certain cases.

Tax credits

In connection with the temporary FMLA and emergency paid sick leave provisions, Division G of the bill includes several tax credits.

Payroll tax credit for required paid sick leave

Effective for wages paid with respect to a period that begins on a date selected by Treasury (within 15 days of enactment) and that ends December 31, 2020, the bill generally would provide an employer payroll tax credit equal to 100% of the qualified sick leave wages paid by the employer under the Emergency Paid Sick Leave Act, subject to certain limitations.  The credit would apply against the OASDI taxes (“old age, survivors, and disability taxes”—more commonly known as the employer portion of Social Security taxes) imposed by Code section 3111(a)—or (as a result of the modifications made last night) the section 3221(a) “Tier 1” excise tax (relating to the Railroad Retirement Act). 

The tax credit generally would be available for wages of up to either $511 or $200 for each day an individual is paid qualified sick leave, depending upon the category in which the individual falls for purposes of determining the amount paid for sick leave.  In addition, the total number of days taken into account in each calendar quarter could not exceed 10 days and would be reduced by the number of days so taken into account in preceding calendar quarters.

The amount of the credit for any calendar quarter generally could not exceed the tax imposed under Code section 3111 or Code section 3221(a) for such quarter. However, the bill includes refundability provisions for credits that exceed tax liability.

In addition, under the modified bill, the amount of the credit would be increased by so much of the employer’s “qualified health plan expenses” as are properly allocable to the qualified sick leave wages for which the credit is allowed.  For this purpose, qualified health plan expenses generally are amounts paid or incurred by the employer to provide and maintain a group health plan to the extent such amounts are excluded from employee gross income under Code section 106(a). Such amounts would be allocated to qualified sick leave wages in such manner as the Secretary of Treasury (or delegate) may prescribe.

     

The bill also would provide that, for purposes of Chapter 1 of the Code, gross income of employers generally would be increased by the amount of the new credit.   Further, no credit would be allowed for wages for which a credit is allowed under Code section 45S (relating to the family and medical leave credit). These rules are under the heading “Denial of Double Benefit.”

The credit would not apply to the government of the United States, any state, any subdivision of a state, or any agencies or instrumentalities of the foregoing.  Employers also could elect not to apply the new provision for any calendar quarter.

The bill also includes special rules for payments to possessions of the United States.

Credit for sick leave for certain self-employed individuals

The bill similarly would allow an eligible self-employed individual a refundable credit against the tax imposed by subtitle A of the Code (relating to income taxes) with respect to qualified sick leave equivalent amounts. To qualify, an individual generally must regularly carry on a trade or business within the meaning of Code section 1402 and must have met the criteria that would apply to receive paid leave pursuant to the Emergency Paid Sick Leave Act if the individual were an employee of an employer.

Rules, limitations, and documentation requirements for self-employed individuals are in section 7002 of the House bill.

Payroll tax credit for required paid family leave

Effective for wages paid with respect to a period that begins on a date selected by Treasury within 15 days of enactment and that ends December 31, 2020, the bill would provide an employer payroll tax credit for each calendar quarter generally equal to 100% of the qualified family leave wages paid by the employer to comply with the Emergency Family and Medical Leave Expansion Act with respect to such quarter.  The credit would apply against the employer portion of OASDI taxes imposed by Code section 3111(a) or the tax imposed by Code section 3221(a). 

The amount of wages taken into account for the credit for each individual could not exceed $200 for any day for which the individual is paid qualifying family leave wages.  In aggregate, a maximum of $10,000 in wages per employee for all calendar quarters would be eligible for the credit.

The amount of the credit for any calendar quarter generally could not exceed the tax imposed under Code section 3111 or Code section 3221(a) for such quarter. However, the bill includes refundability provisions for credits that exceed tax liability.

As with the qualified sick leave program, under the modified bill, the amount of the credit for required paid family leave would be increased by so much of the employer’s qualified health plan expenses as are properly allocable to the qualified family leave wages for which the credit is allowed. The credit likewise would be subject to similar “denial of double benefit” rules as the credit for sick leave.

The credit would not apply to the government of the United States, any state, any subdivision of a state, or any agencies or instrumentalities of the foregoing.  Employers also could elect not to apply the new provision for any calendar quarter. 

Credit for family leave for certain self-employed individuals

The bill would allow an eligible self-employed individual a refundable credit against the tax imposed by subtitle A of the Code (relating to income taxes) with respect to qualified family leave equivalent amounts.  To qualify, an individual must regularly carry on a trade or business within the meaning of Code section 1402 and must have met the criteria that would entitle the individual to receive paid leave pursuant to the Emergency Family and Medical Leave Expansion Act if the individual were an employee of an employer.

Rules, limitations, and documentation requirements for self-employed individuals are in section 7004 of the House bill.

Wages under Code section 3111 or Code section 3221(a)

The bill provides that any wages required to be paid by reason of the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act would not be considered wages for purposes of Code section 3111(a) or Code section 3221(a).  

Offset of employer’s health insurance tax

In addition, following the modifications made in last night’s resolution, the bill provides that the credits for qualified sick leave and family leave are increased by the amount of tax imposed by Code section 3111(b) (employer portion of Medicare tax) on the qualified sick leave wages or qualified family leave wages for which the credits are allowed.  

What’s next?

The Senate is expected to consider the House bill soon.  It is not clear at this point whether or not the Senate will modify the House bill.  There are also indications that Congress could consider additional tax legislation related to COVID-19 after completing work on H.R. 6201.

Previously, on March 12, 2020, the president indicated he would sign H.R. 6201.

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