Coronavirus and Beyond: IRS Promises Full, Immediate Reimbursement for Sick Leave

April 2, 2020

It’s no surprise that the coronavirus pandemic and response have led to layoffs and economic uncertainty. The Secretary of Labor Eugene Scalia has confirmed, “This large increase in unemployment claims was not unexpected,” but stimulus checks and other measures are expected to soften the impact. The federal government has also sought to provide incentives and immediate relief for employers who are able to retain staff. Small and midsize businesses, in particular, can expect full and immediate reimbursement for sick leave from the Internal Revenue Service (IRS).

In response, Netchex has created COVID-19 Response Portal, an easy way for employers to institute, track, and remain compliant with the new COVID-19 laws (and flow seamlessly into payroll) all within our system.

Employers naturally have a lot of questions about the support offered by the new legislation. What business expenses are covered? Where can we go for more information? Here’s more information on the CARES Act as it pertains to businesses.

CARES Act Stimulus and Assistance

Much discussed, the Coronavirus Aid, Relief, and Economic Security Act (CARES) stimulus package was signed into law on March 27. The two trillion dollar bill provides support for individual Americans and businesses. In some ways, it expands on the Families First Coronavirus Response Act. Thanks to the CARES Act, employees who were laid off during March can be re-hired and still qualify for FFCRA support. The CARES Act also includes provisions for Unemployment Insurance and 100% guaranteed loans for certain businesses. Significantly, there’s also a measure for loan forgiveness that matches spending on payroll (up to $100,000) for an eight-week period, with incentives for businesses to minimize layoffs and pay reductions.

Full and Immediate IRS Reimbursement

Through payroll tax credits, the Families First Coronavirus Response Act (FFCRA) is providing 100% reimbursement for paid leave and healthcare insurance costs associated with the paid leave mandate. The IRS and Department of Labor provided an overview of the program and its conditions on March 20th. The reimbursements are described as “an immediate dollar-for-dollar tax offset against payroll taxes” alongside a pledge by the IRS to send any necessary refunds as quickly as possible. 

Limitations on Business Size

Targeting small and medium-sized businesses, many of the measures are intended for businesses with fewer than 500 employees. Hospitality businesses may still qualify as long as each location has fewer than 500 employees. For businesses near the cutoff point, there will need to be a headcount whenever an employee requests leave. Full-time, part-time, and temporary employees are included as well as employees currently on leave.

Nonprofits and companies with fewer than 50 employees may be exempt from requirements involving parental leave and paid sick leave. The exception only applies if granting leave would jeopardize the viability of the business, either because the individuals requesting leave are too highly skilled or knowledgeable, or else because there wouldn’t be enough remaining employees to operate, even at minimal capacity. If the school or daycare of an employee’s child is closed for reasons unrelated to COVID-19, then no special exception applies.

How the Immediate IRS Reimbursements Work

Eligible employers are covered up to a certain number of hours and total pay, depending on the circumstances. Whether an employee is sick, caring for a sick family member, or looking after kids while schools are closed, different caps apply to the daily and total pay. Businesses may choose to pay more than the maximum, but the caps indicate how much can be reimbursed for each employee.

If an employer pays $7,000 in sick leave (without going over the caps for individual employees), then they can subtract that amount from their required deposit in payroll taxes. If they would normally be required to deposit $9,000 in payroll taxes, then on their regular deposit date, the employer could deposit only the $2,000 difference. Instead of being set aside and deposited with payroll taxes, the $7,000 is immediately available to make qualifying leave payments to employees.

30 Days of Non-Enforcement

If you’re struggling to crunch the numbers, there’s a 30-day period of non-enforcement. The Department of Labor has said that they’ll make allowances for employers who have not willfully violated the Act. There are protections as long as your company has made “reasonable, good faith efforts to comply” with the FFCRA.

Netchex remains fully operational through this unprecedented time. Our staff is hard at work for businesses like yours that are working diligently to remain in operation, adapt their policies, and ensure the safety of their employees. Netchex is here to help you accomplish all of this and more. Please visit our continually updating library of coronavirus resources.


Netchex is the leading HCM partner helping you improve workforce management and optimizing benefits for your employees. Our powerful, yet user-friendly technology simplifies the business of HR and bring self-service features to your company to provide more independence for your team.

Talk to us to find out how to put Netchex to work for your company. Take a look at our full suite of HCM solutions that grow with your business, including payroll, compliance, HR, benefits administration, and time & attendance, backed by experts and the best technology in the industry.