The current COVID-19 pandemic has shown the importance of sick leaves for employees and employers alike. It has also started debates on the viability of requiring employers to provide a set number of paid sick leaves annually. In this article, we will focus on the effects of paid sick leaves on the accounting aspect of US businesses.

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Paid sick leaves or sick pays are periods employees may avoid going to work without any deduction to their wages. Employees, however, may only take advantage of this benefit for the preservation of their health and well-being.

The federal government does not require companies to offer paid sick leaves to their employees. This lack of regulation is why almost a quarter of employees in the US do not have paid sick leaves.

This situation, however, may change soon thanks to the Families First Coronavirus Response Act, which the congress recently passed last March 2020. The law requires businesses to provide their employees with at least two weeks of paid sick leave. The act, however, exempts some businesses, such as those having more than 500 employees.

One of the first government institutions to provide a guideline on the proper accounting treatment of these leaves is the IRS. The tax guidance the Internal Revenue Service released talked about the law’s coverage, its effectivity and enforcement dates, and tax application.

You can read more about this IRS guidance with this article on the Journal of Accountancy by Sally P. Schreiber.

Coronavirus Paid Sick Leave And Family Leave Guidance Issued

Under a recently enacted law, eligible small and midsize employers can claim two new refundable payroll tax credits, designed to reimburse them, dollar for dollar, for the cost of providing coronavirus-related leave to their employees. The relief was enacted under the Families First Coronavirus Response Act, PL, 116-127, signed by President Donald Trump on March 18, 2020.

The law requires paid sick leave and expanded family and medical leave for workers affected by the coronavirus and created refundable credits for eligible employers. Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave. Click here to read more…

 As the article explains, the Department of Labor announced that the law has a 30-day non-enforcement period. This period gives employers ample time to adjust their policies to accommodate the new requirement.  Employers, however, are still facing some confusion regarding the matter.

Fortunately, the IRS recognizes this problem. To address it, the IRS posted 67 FAQs on their website. Around seven sections make up the article. The first groups are basic FAQs, followed by the proper ways of calculating the credits for sick leaves. Then, it discusses the correct way to compute family leave credits.

The fourth section is about calculating the allocable health care plan expenses for credit purposes. The fifth section talks about the procedures in claiming the credits. Next are special issues employees and employers may encounter. Lastly, the final section discusses how self-employed individuals can claim the credits. You can read more about these in this article posted by Sally P. Schreiber on the Journal of Accountancy lay 18 April 2020.

IRS Posts FAQs On Paid Sick And Family Leave

The IRS on Friday posted 67 FAQs on the employer tax credits for paid sick and family leave enacted in the Families First Coronavirus Response Act, PL 116-127. Businesses with fewer than 500 employees (referred to as “eligible employers”) will obtain funds to provide employees with paid sick leave and family and medical leave for reasons related to COVID-19, either for the employee’s own health needs or to care for family members. The FAQs were updated on Friday to address issues for employers of health care workers and emergency responders. Click here to read more…

Taxes affect every facet of our businesses. This fact is most evident during extreme situations, such as the pandemic we are currently facing. In the same manner, crises such as this financially affect our employees. The only way for them to survive is through benefits such as paid sick leaves.

Fortunately, the government provides ways to help both employees and employers so that these benefits do not undermine the needs of businesses. AldarisCPA provides top-notch tax accounting and consultation services. You can tap our help by contacting us through this link.