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COVID-19: Highlights from the IRS FAQs on Emergency Paid Sick and Family Leave Tax Credits for U.S.-based Small and Mid-sized Employers

We recently summarized the provisions from the Families First Coronavirus Response Act (“FFCRA”) that provide for tax credits for small employers to offset costs associated with paid sick leave and emergency FMLA benefits (see here). The IRS has been compiling a set of FAQs regarding these tax credits, which covers a number of topics. Here are a few of the highlights:

  • To claim the credits, eligible employers will report their total qualified leave wages and the related credits for each quarter on their federal employment tax returns (usually Form 941). In anticipation of the credits, employers may fund qualified leave wages, allocable qualified health plan expenses, and the employer’s share of Medicare tax on the qualified leave wages by either using federal employment taxes the employer has set aside for deposit with the IRS or by requesting an advance from the IRS.
  • To substantiate eligibility for the medical and family leave credits, employers should obtain a statement from the employee requesting leave in which the employee provides:
    • The employee’s name;
    • The date(s) for which leave is requested;
    • A statement that the employee is not able to work (including telework) for that reason.
    • If the leave is requested due to a quarantine order or self-quarantine medical advice, the statement should include the governmental entity ordering quarantine or medical professional advising self-quarantine.
    • If the leave is due to school closing or lack of childcare availability, the statement should include the name(s) and

COVID-19: CARES Act Limits Executive Compensation for U.S. Businesses Participating in CESA Relief

As part of the recently passed Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act), the Treasury Department will provide loans, loan guarantees, and other investments for U.S. businesses, states, and municipalities dealing with losses incurred as a result of COVID-19.  Among other requirements, businesses that enter into these loan agreements are subject to certain limits on executive compensation during the period beginning on the date the loan agreement is entered into and ending one year after the loan or loan guarantee is no longer outstanding (the “Restriction Period”).  Note that these limits are not applicable to businesses that participate in the small business relief that was also provided under the CARES Act.[1]  More information on the small business relief under the CARES Act can be found here. The rules described below apply to certain specialized industries (passenger air carriers, cargo air carriers, and businesses critical to maintaining national security) as well as other mid-sized businesses in any industry with between 500 and 10,000 employees. The restrictions on executive compensation are as follows:

  • No officer or employee of the business whose total compensation exceeded $425,000 in 2019 (other than an employee whose compensation is determined through an existing collective bargaining agreement entered into prior to March 1, 2020) may receive from the business:
    • Total compensation which exceeds, during any 12 consecutive months of the Restriction Period, the total compensation received by the officer or employee from the business in 2019; or

COVID-19: Emergency Leave-Sharing Plans for U.S. Employers

In addition to the paid sick leave and family leave U.S. employers must provide under the Families First Coronavirus Response Act (“FFCRA”), some employers are seeking additional ways to support employees affected by COVID-19. The IRS has published guidance on leave-sharing plans for employees affected by a major disaster or emergency, as declared by the President. President Trump issued such a declaration on March 13 (retroactive to March 1), so this guidance applies to employers who wish to implement an emergency leave-sharing plan at this time.

A major disaster leave-sharing plan as applied to the current COVID-19 emergency is a written plan that meets the following requirements:

  • The plan allows employees to voluntarily deposit accrued leave in an employer-sponsored bank for use by other employees who have been adversely affected by COVID-19. An employee is considered to be adversely affected by a COVID-19 if it has caused severe hardship to the employee or a family member of the employee that requires the employee to be absent from work.
  • The plan does not allow employees to deposit leave for a specific leave recipient.
  • The amount of leave that may be deposited by an employee in any year generally does not exceed the maximum amount of leave that the employee normally accrues in a year. Under this requirement, employees likely cannot donate emergency sick leave provided under the FFCRA.
  • An employee may receive paid leave, at his or her normal rate of compensation, from leave deposited

Families First Coronavirus Response Act Part 1 of 2: Small Employer Tax Credits

The Families First Coronavirus Response Act (“FFCRA“) generally requires U.S. employers with fewer than 500 employees (“Small Employers”) to provide paid sick leave and additional FMLA benefits to their employees.[1] You can read our summary of the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act here and here, respectively.

In order to offset some of the costs these provisions impose on Small Employers, the FFCRA also provides a quarterly payroll tax credit equal to 100% of the qualified sick and leave wages paid to employees under the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act.

The amount of leave wages taken into account is limited with respect to each individual employee for purposes of the credit.

  • For sick leave wages paid due to an employee’s illness or quarantine, the amount of wages taken into account for purposes of the credit is capped at $511 per day and $5,110 in the aggregate for each employee; and
  • For sick leave wages paid due to an employee’s need to care for others or care for the employee’s child(ren) due to school closures[2], the amount of wages taken into account for purposes of the credit is capped is $200 per day and $2,000 in the aggregate for each employee. Sick leave wages under the FFCRA are available for a maximum of 2 weeks (10 days).

Guidance on Employee Benefits and the Coronavirus (COVID-19)

As the Coronavirus has continued to spread, there has been guidance from various entities on a myriad of topics pertaining to employee benefits. Summaries and links to such guidance can be found below. This information will be updated regularly as more guidance becomes available.

The Health Insurance Portability and Accountability Act (HIPAA): The Office for Civil Rights, a division of the U.S. Department of Health and Human Services, published a bulletin outlining privacy of protected health information and when covered entities may disclose such information without a patient’s authorization. Covered entities may be able to disclose needed protected health information without individual authorization to public health authorities, to persons at risk of contracting or spreading a disease, or to prevent a serious and imminent threat, among other limited circumstances. Covered entities must make reasonable efforts to limit the information disclosed to that which is the minimum necessary to accomplish the purpose. In a prior post, we provided a review of the bulletin and ongoing HIPAA obligations for covered entities.

The Family and Medical Leave Act (FMLA): The U.S. Department of Labor released a Q&A addressing various questions about employee rights and employer responsibilities under the FMLA. Eligible employees are typically entitled to take up to 12 weeks of unpaid, job-protected leave in a designated 12-month period due to their own illness or that of a family member. Covered employers must continue to abide by federal FMLA laws as well

Fiduciary Responsibilities under ERISA in an Uncertain Market

If you are an ERISA fiduciary charged with management or investment of plan assets, and recent market activity has not tripped any alarm bells — or, if the alarm bells have been tripped, but you are are looking for a bit of guidance on how to respond, then keep reading.  Due to a combination of recent factors, including the spread of the Coronavirus (COVID-19), the stock market suffered its worst drop in over 30 years this past week. Moreover, the market outlook will likely continue to be uncertain for the near future as businesses around the world adjust and take action in response to the COVID-19 outbreak and many consumers are quarantined in their homes.

In this volatile market, it is important for fiduciaries of retirement and other funded plans governed by the Employee Retirement Income Security (ERISA) to keep their fiduciary duties in mind and take appropriate action. As a reminder, those duties under Sections 404 and 406 of ERISA include:

  • The duty to act prudently;
  • The duty to diversify assets of the plan;
  • The duty to comply with provisions of the plan;
  • The duty of loyalty;
  • The duty to pay only reasonable plan expenses; and
  • The duty to avoid prohibited transactions.

The first three of these are particularly relevant when the market is uncertain.

  • The duty to act prudently: It is important to remember that this duty requires the fiduciary to act with the care, skill, prudence, and diligence that a prudent person acting in
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