Employer FICA tax relief.
Qualified sick leave and family leave payments mandated by the new law are exempt from the 6.2% Social Security tax component of the employer FICA tax on wages. Employers must pay the 1.45% Medicare tax component of the FICA tax on qualified sick leave and family leave payments, but they can claim a credit for that outlay.
Credits for self-employed people.
For a self-employed individual who’s affected by the COVID-19 emergency, the new law allows a comparable refundable credit against the individual’s federal income tax bill. If the credit exceeds the individual’s federal income tax bill (including the self-employment tax), the excess will be refunded via a check from the government. The credit equals:
- 100% of the self-employed person’s sick-leave equivalent amount, or
- 67% of the person’s sick-leave equivalent amount for taking care of a sick family member or taking care of the individual’s child following the closing of the child’s school or childcare location.
The sick-leave equivalent amount equals the lesser of:
- The individual’s average daily self-employment (SE) income, or
- $511 per day for up to 10 days (up to $5,110 in total) to care for the individual or $200 per day for up to 10 days (up to $2,000 in total) to care for a sick family member or a child following the closing of the child’s school or childcare location.
In addition, a self-employed individual could receive a family leave credit for up to 50 days. The credit amount would equal the number of leave days multiplied by the lesser of:
- $200, or
- The individual’s average daily SE income.
The maximum total family leave credit would be $10,000 (50 days x $200 per day).
Credits for self-employed individuals are only allowed for days during the period beginning on a date specified by Treasury Secretary Mnuchin and ending on December 31, 2020. The beginning date will be within 15 days of March 18, 2020.
Important: To properly claim the credit, self-employed individuals must maintain whatever documentation the IRS requires in future guidance. Contact your tax professional for details.