The Families First Coronavirus Response Act (FFCRA), which became law on March 18, 2020, provides a number of relief measures, including help for small businesses and paid sick leave for workers. One of these benefits is the Child Care Leave Credit, which allows an employer to claim a refundable credit of up to $10,000 if they provide paid leave to an employee who needs to stay home to care for their children. The FFCRA is set to expire on December 31, 2020, so it’s important to be prepared.
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What Is the Child Care Leave Credit?
The Child Care Leave Credit is a provision included in the FFCRA. This refundable tax credit is available to employers who offer paid sick leave to employees who can’t work or telework because they need to care for a child who’s school or childcare facility is closed due to the coronavirus. This exists in addition to the Paid Sick Leave Credit, which provides similar relief for employers who have employees that are quarantined or self-quarantined for coronavirus or who have coronavirus symptoms and are seeking a medical diagnosis.
The Child Care Leave Credit, which expires at the end of 2020, is worth two-thirds of an employee’s regular pay for up to 10 weeks. The credit is capped at $200 per employee, per day and is available for up to $10,000 in aggregate. Certain eligible employers can also claim an additional credit that’s based on the healthcare coverage maintenance costs for an employee during their time on leave.
To be clear, this credit is claimed by the business itself to offeset the cost of paid leave they provide to an employee. Note that employers can also claim a prorated credit for part-time employees, with it equaling their average number of working hours over a two-week period.
How Does the Child Care Leave Credit Work?
Because liquidity is a growing concern among businesses around the country, the government structured many of the tax credits in the FFCRA as refundable credits. This means that the Child Care Leave Credit isn’t just something businesses can claim after filing their taxes. In fact, employers can take the amount of the credit and offset it against the typical share of employee payroll taxes that they would typically pay.
The above arrangement allows businesses to keep the money up front instead of waiting on a check from the government. Businesses are also able to file requests for expedited payments from the IRS. This should be done in the event that the employer’s portion of employee payroll taxes does not cover the full amount of the credit. Employers can also set up a multi-employee fund to cover these costs.
Before employers can claim the credit, employees may need to take their first 10 days of leave on an unpaid basis. If the employer doesn’t pay them during this time, then the employee may use their personal leave, vacation time or medical leave to cover those days. The FFCRA does not require employees to use emergency paid sick leave during this time.
It’s important to note that the Child Care Leave Credit is available in addition to the Paid Sick Leave Credit, as the two don’t count against each other. The latter can cover up to $511 per employee, per day, with a limit of up to $5,110. This credit is available for a total of 10 days. All of the credits in the FFCRA are set to expire December 31, 2020.
Eligibility Requirements for the Child Care Leave Credit
The Child Care Leave Credit is available to cover the salaries of both full- and part-time employees. To be eligible, an employee must be caring for a child under 18 years of age who has been kept home from school or a childcare facility due to the coronavirus pandemic. This includes a quarantined child or if a child’s school or childcare facility has been closed due to the pandemic.
Self-employed individuals are also eligible to claim the Child Care Leave Credit. These people should claim the credit on their normal tax returns, meaning it will reduce their taxes owed.
Small businesses that have fewer than 50 employees may be eligible for an exemption from the Child Care Leave Credit and the Paid Sick Leave Credit. This rule exists to protect small businesses from being hurt by the financial impact of these requirements.
Do I Need to Apply for the Child Care Leave Credit?
Small businesses do not need to apply for the Child Care Leave Credit. That’s because the FFCRA makes the credit widely available to most businesses. However, those with 50 employees or less should check to see what their requirements are. You should also note that the FFCRA is set to expire at the end of 2020. Visit IRS.gov to learn more.
As an employee, talk to your employer about the leave options they are offering. However, only businesses or self-employed individuals will claim the Child Care Leave Credit itself. Therefore, employees won’t see any difference on their personal taxes. The only thing that you may have to prove as an employee is that you are taking time off to care for an eligible affected child.
The Child Care Leave Credit is another one of several important provisions rolled into the FFCRA. It is instrumental in helping businesses retain employees that may have no choice but to leave work to help care for their children in this time of need and uncertainty. The credit is simple for employers to claim, and it should help with liquidity issues. It has helped businesses stay afloat, all while affording employees the flexibility to manage their personal needs. However, the credit, along with the FFCRA as a whole, is set to expire at the end of 2020, so make sure you’re prepared.
Tips for Small Business Owners
- Many financial advisors specialize in helping business owners with their finances and taxes. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool can simplify your search for an advisor, as it pairs you with suitable local matches in just five minutes. If you’re ready to start working with a financial advisor, get started now.
- The Coronavirus Aid, Relief, and Economic Security (CARES) Act spells out a number of other small business relief measures instituted by the federal government. These include the Paycheck Protection Program (PPP), Economic Injury Disaster Loans (EIDLs) and more.
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