How to Claim Payroll Tax Credit for COVID-19 Paid Leave
Background: FFCRA Tax Credits
The Families First Coronavirus Response Act (FFCRA) allows employers with less than 500 employees to take the paid leave tax credit for the following expenses:
- Gross wages for sick leave paid under the FFCRA
- The employer share of Medicare tax on the FFCRA paid leave gross wages
- Health insurance expenses
The general formula for calculating these payroll tax credits is:
Gross paid leave wages + 1.45% Employer Medicare Tax + Qualified Health Expenses.
For more details, see the IRS FAQ page about COVID related tax credits.
How FFCRA Tax Credits Are Given in Patriot Software
If you are a Full Service Payroll customer, the tax credits will be applied immediately to each payroll, which will reduce the amount we collect from you. Any extra tax credit will be applied to your future payrolls when we file your taxes.
Let’s take a closer look at the three sources of the paid leave tax credit, and how to make sure these will be correctly calculated when you run payroll in Patriot Software.
Gross wages for sick leave paid under the FFCRA
You must use one of the three pre-set hour types when paying leave:
- COVID 100 Sick: To be used when paying employees at their full regular rate due to their own need to quarantine or isolate, receive a COVID vaccine, or deal with vaccine complications.
- COVID ⅔ Sick: To be used when paying employees at ⅔ their regular rate if they are caring for someone who must quarantine or isolate, accompany someone getting a vaccine, or care for someone recovering from the vaccine.
- COVID Family Leave: To be used when caring for children as a result of school/daycare being closed.
For more information about using these hour types, see Setting Up Employee Paid Leave in Patriot Software due to COVID-19.
These hour types will automatically calculate the tax credit as 100% of gross wages, up to the maximum allowed dollar amount.
Note that employees will still have their normal income tax withheld from these paid leave payments. However the payroll tax credits will reduce the amount you are required to deposit.
Employer share of Medicare tax on the paid leave gross wages
For the paid leave mentioned above, the employer share of Medicare tax, which is 1.45% of the eligible paid leave wages, will be calculated as a payroll tax credit.
For COVID paid leave hours paid from 4/1/2020 through 3/31/2021, employers are also exempt from the employer portion of Social Security tax on the eligible paid leave. This will not be calculated or owed. For COVID paid leave hours paid from 4/1/2021 to the present time, employers are no longer exempt from the employer portion of Social Security tax, but instead will get an additional tax credit on those wages.
Employers will still pay state and local income taxes as normal, and also FUTA and SUTA unemployment taxes.
Keeping track of Payroll Tax Credits
You will be able to view all payroll tax credits that you have taken and used on the Payroll Tax Credit Report.
Report > Payroll Tax Filings> Payroll Tax Credit Report.
You can read more on how to use the Payroll Tax Credit Report in our help article.