School Closings and New Federal Tax Credit Law

Normally our website posts updates about Pennsylvania EITC and special purpose entity (SPE).  Because of the unprecedented school temporary shutdowns in Pennsylvania we wanted to give a helpful update on the new law that may allow schools paying employees to get payroll tax relief and parents with children at home much needed family medical leave pay income.  Spring EITC donations are coming in and fall scholarships are going out from our charity.  Currently our charity is only open 12 office hours a week to protect staff from Coronavirus exposure and emails and calls are returned from home 28 hours per week.  While our charity is a necessary business under the governors order we feel the shelter in home order is coming soon so we are perfecting this work schedule for now.


The Families First Coronavirus Response Act was signed by President Trump Wednesday March 18, 2020.  There is a 15 day implementation period and the IRS has announced a 30 day grace period of no law enforcement provided employer acted in good faith.  


Family Medical Leave Act (FMLA) requires employers over 50 employees to provide 12 weeks of unpaid leave to employees and firing an employee for FMLA reasons can lead to financial consequences to the employer.  Families First Coronavirus Response Act expands FMLA temporarily to all employers just for Coronavirus purposes and only until January 19, 2021.  The new law also requires paid Coronavirus sick leave pay but the cost can be mostly reimbursed by tax credits issued to employers with their 941 filings.


Caution should be exercised in Coronavirus related firings and layoffs because of the rights of employees to this new benefit contained in the Families First Coronavirus Response Act.  A new notification to employees must be posted in the workplace and will be provided soon by the Department of Labor.


There are 6 situations where Coronavirus sick leave wages are required :

1. The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID–19.
2. The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID–19.
3. The employee is experiencing symptoms of COVID–19 and seeking a medical diagnosis.
4. The employee is caring for an individual who is subject to an order as described in (1) or has been advised as described in (2).
5. The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID–19 precautions.
6. The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

The employer has to pay out these wages and then ask for a tax credit on quarterly employer form 941. These Coronavirus tax credits reduce 941 social security taxes owed and any excess is refundable.


A small business or school is now under FMLA for Coronavirus purposes and should make sure proper employee notices are posted, employee written communication about layoffs consider this new employee Coronavirus benefit and employee requests for this benefit are handled properly.  Larger businesses have human resource employees and labor attorneys but smaller businesses may need to reach out to develop internal or external sources of assistance to stay in compliance with this new law and employer mandate.


Item #5 above is currently the most relevant as most school children are at home right due to school closures.  10 weeks or 50 days of paid family medical leave is limited to 67% of an employees daily pay rate or $200 per day whichever is lower.  The employer is mandated to pay this family leave but can get a reduction in employer payroll tax via a tax credit to reimburse the employer for the cost.


More information is available at www.coronavirustaxcredits.com.


Schools are strongly advised to consult their tax advisor for the advice applicable to their specific circumstances.  This article does not constitute tax advice