On March 20, 2020, Treasury, the IRS and the Labor Department described how eligible employers could cover COVID-related paid leave without waiting for a later tax return. The announcement said businesses and tax-exempt organizations with fewer than 500 employees could retain payroll-tax deposits up to the qualifying leave costs. The law authorized refundable credits, but that did not make every payroll expense eligible. [S1][S2]

The Families First Act set a 100% credit for qualifying sick-leave wages, subject to per-day and total limits, and provided a separate credit for qualifying family leave. Excess credit could be refunded under the statute. The percentage therefore applied to defined wages within statutory limits—not to all wages or to every form of leave a business chose to offer. [S2]

The cash-flow mechanism was a tax-deposit offset: an employer could hold back federal payroll taxes otherwise due, including employee withholdings, up to the amount of qualifying leave paid. If the leave costs exceeded those deposits, the agencies said an employer could request an expedited advance. But on March 20, the IRS said the streamlined form and procedure would be released the following week; the release described a planned process, not proof that a particular employer had already received money. [S1]

The announcement also paired the leave mandate with implementation limits. It said Labor would use a 30-day non-enforcement period for employers making reasonable, good-faith compliance efforts. Businesses with fewer than 50 employees could seek an exemption for child-care leave when providing it threatened the business’s viability, under criteria Labor still planned to explain. These were temporary 2020 rules, not current tax or employment guidance. [S1]

Source documents

  1. Treasury, IRS and Labor announce plan to implement Coronavirus-related paid leave and tax creditshttps://www.irs.gov/newsroom/treasury-irs-and-labor-announce-plan-to-implement-coronavirus-related-paid-leave-for-workers-and-tax-credits-for-small-and-midsize-businesses-to-swiftly-recover-the-cost-of-providing-coronavirus
  2. Families First Coronavirus Response Act, Public Law 116-127https://www.congress.gov/116/plaws/publ127/PLAW-116publ127.pdf