Compliance Snapshot:
- FFCRA leave remains voluntary for employers;
- Employees can take FFCRA leave to get the COVID vaccine and to recover from any related side effects;
- FFCRA tax credits continue to be available only to employers with fewer than 500 employees through Sept 30, 2021;
- If employers offer FFCRA leave, they cannot discriminate in favor of highly compensated, full-time, or tenured employees;
- There is an increase in the limit on the tax credit for family leave wages to $12,000;
The latest COVID-19 stimulus package, the American Rescue Plan Act (ARPA), was passed by Congress and became law on March 12, 2021. It includes $1.9 trillion in economic relief and, among other things, extends the tax credit available to employers for voluntarily providing leave that was previously required under the Families First Coronavirus Act (FFCRA) through September 30, 2021. For more information about other provisions of the American Rescue Plan please visit our blog post.
Though the mandate to provide paid leave under the FFCRA expired on December 31, 2020, the Consolidated Appropriations Act of 2020 allowed covered employers to claim a tax credit for voluntarily providing leave that would have otherwise be mandated under the FFCRA, through March 31, 2021. The ARPA further extends and expands the credit through September 30, 2021. This article provides an overview of what we know so far about the FFCRA tax credit extension.
Are Employers Required to Provide FFCRA Leave?
Covered employers’ obligation to provide FFCRA leave expired on December 31, 2020. However, employers with less than 500 employees nationwide may voluntarily continue to provide leave for FFCRA qualifying reasons and claim a tax credit through September 30, 2021. Employers with more than 500 U.S. employees are not eligible to take advantage of the tax credit.
How Many Weeks are Available for FFCRA Leave?
Family Leave
The American Rescue Plan increased the number of paid weeks available to employees for family leave under the FFCRA from ten (10) weeks to twelve (12) weeks by removing the initial two-week unpaid waiting period. This also corresponds with an increase in the amount of total tax credit available to employers for family leave to $12,000.
It is still unclear from the regulations whether 12 weeks of family leave resets after April 1, 2021 which would allow an employer to claim additional tax credits for up to 12 additional weeks of family leave voluntarily provided between April 1, 2021 and September 31, 2021.
Sick Leave
The amount available for employee FFCRA sick leave remains at two weeks. However, unlike the uncertainty for family leave, the amount of FFCRA sick leave available is certain to reset as of April 1, 2021 and employers can obtain a tax credit for up to two weeks of sick leave provided through September 30, 2021. This means that any sick leave taken by a covered employee before March 31, 2021, will not count against the available tax credit that can be claimed from April 1, 2021 through September 31, 2021.
What Tax Credits are Available for Employers who Voluntarily provide FFCRA leave from April 1, 2021 to September 30, 2021?
The aggregate maximum credit for qualified family leave wages was increased from $10,000 to $12,000 per employee. The maximum credit for paid sick leave wages remain unchanged ($2,000 or $5,110 per employee, depending on the type of leave taken). These tax credits will apply against Medicare taxes rather than Social Security taxes (which was how the credit was structured in the prior iteration of the law). For more information about FFCRA tax credits, please see the IRS resource on Employer Tax Credits.
As always, employers should consult with tax professionals on questions related to their ability to obtain these tax credits.
Did the Tax Credit Limits Increase?
Family Leave
The ARPA increased the aggregate maximum credit for qualified FFCRA family leave to $12,000 (the maximum credit for FFCRA paid sick leave wages remains unchanged). This means that an employer can claim a total tax credit of up to $12,000 per employee which reflects 2/3 of the employee’s regular pay capped at $200 per day for FFCRA family leave.
Sick Leave
An employer can claim a total tax credit of up to $2,000 for two weeks (10 days) of FFCRA sick leave for employees beginning April 1, 2021. The amount of tax credits an employer can receive is limited to 2/3 the employee’s regular rate of pay and capped at $200 a day for FFCRA sick leave.
For example, an employer provides 10 days of paid sick leave in January 2021 and claims an FFCRA tax credit of $2,000 to cover the cost. Then in May 2021, employer voluntarily provides an additional 10 days of paid sick leave to the same employee. The ARPA permits this employer to claim an additional tax credit of up to $2,000 for the additional 10 days of paid sick leave provided to this employee.
What are the Qualifying COVID-19 Related Reasons for FFCRA Leave?
To receive the tax credit, leave must be provided for a “qualifying reason” under the FFCRA. Notably, the ARPA permits qualifying employers that would like to provide paid leave for reasons related to the COVID-19 vaccine to claim a tax credit.
The ARPA extends the qualifying COVID-19 related reasons for FFCRA leave to include:
- Obtaining a vaccine;
- Recovering from an injury, disability, illness or condition related to such vaccination; or
- Seeking or awaiting results of a diagnostic test or medical diagnosis for COVID-19.
The ARPA also expands the qualifying reasons for paid family leave to include all of the same reasons originally limited to FFCRA paid sick leave (e.g., quarantine, treatment due to COVID-19 diagnosis or symptoms, care for a family member with COVID-19, etc.). Prior to the ARPA, only absences for childcare due to COVID-19 school/place of care closure, qualified for the additional weeks of FFCRA paid family leave beyond the two weeks of FFCRA paid sick leave.
Therefore, as a practical matter, employees may still want to exhaust FFCRA sick leave first since employees receive 100% of pay (max of $511/day) before switching to family leave which is paid at two-thirds (max of $200/day) for the same qualifying reason.
As a reminder, employers can also receive a tax credit for providing paid leave on a job-protected basis for the following qualifying reasons when an employee is unable to work or telework:
- Employee subject to a Federal, State, or local quarantine or isolation order;
- Paid at 100% and capped at $511 per day ($5,110 in the aggregate).
- Employee has been advised by a health care provider to self-quarantine due to concerns;
- Paid at 100% and capped at $511 per day ($5,110 in the aggregate).
- The employee is experiencing symptoms of the virus and seeking medical diagnosis;
- Paid at 100% and capped at $511 per day ($5,110 in the aggregate).
- The employee is caring for an individual who is subject to, or advised by a healthcare provider to self-quarantine;
- If assisting an individual who must quarantine, the employee is paid at 2/3 of their pay rate and capped at $200 per day ($2,000 in the aggregate).
- The employee is caring for a child if the school, place of care, or childcare provider, is closed or unavailable due to COVID-19 precautions;
- If caring for a child due to school/childcare closure, the employee is paid at 2/3 of their pay rate and capped at $200 per day ($2,000 in the aggregate).
- The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary or the Treasure and Secretary of Labor.
- The employee is paid at 2/3 of their pay rate and capped at $200 per day and $2,000 in the aggregate.
Can Employers Offer FFCRA Leave to Some Employees but not Others and Receive a Tax Credit?
No. The ARPA adds a nondiscrimination requirement for employers to receive the tax credits made available. If employers provide this leave, they are required to offer it in a uniform manner and are prohibited from favoring highly compensated employees, full-time employees, or employees based on tenure.
What are the Employer’s Recordkeeping Requirements for Purposes of the Tax Credit?
The Internal Revenue Service (IRS) released a series of frequently asked questions regarding the employer requirements, limitations on benefits, and application of the paid leave credits highlighting the documentation employers should require from employees to substantiate an employee’s need for leave under the FFCRA. Employers subject to the FFCRA should keep all records of employment taxes for at least 4 years after the date the tax becomes due or is paid, whichever comes later. For more information about recordkeeping and tax credit substantiation please visit our blog post.
How can Employers Receive the Tax Credit?
The FFCRA tax credits can be used to offset the amount an employer owes in federal employment taxes on a quarterly basis. If the tax credit exceeds what an employer owes for that quarter, the employer can request a payment for the balance of the tax credit. For more information about FFCRA tax credits and determining the amount of tax credits for qualified family leave wages please see IRS guidance and blog posts here and here.
Employer Considerations
While employers are no longer required to provide paid leave under the FFCRA, employers may be subject to state and local leave laws and ordinances that would require them to provide paid leave through 2021. Employers will want to ensure they are aware of any additional state and local leave requirements that may apply. In addition, employers should monitor developments at the federal level.
We anticipate the Department of Labor or IRS will provide updated guidance on the FFCRA expansion and tax credit extensions. This article will be updated as we continue to learn more.
Additional Resources
- Sequoia Foreword: Families First Coronavirus Response Act (“FFCRA”) Tax Credits Continue While Leave Entitlement Expires at Year-End
- Sequoia Foreword: Biden Stimulus Package: Impact on Employer-Provided Benefits
- Sequoia Foreword: EEOC Issues Guidance on COVID-19 Vaccine
- Sequoia Foreword: COVID-19 Stimulus Package Signed into Law
- Sequoia Foreword: What Employers Need to Know About FFCRA Recordkeeping & Posting Requirements
- Sequoia Foreword: Employer Tax Credits under the FFCRA and the CARES Act
- Sequoia Foreword: Employer Tax Credits for Health Care Expenses Under the FFCRA and the CARES Act
- The American Rescue Plan (H.R. 1319)
- IRS: New Employer Tax Credits
- Families First Coronavirus Response Act
Disclaimer: This content is intended for informational purposes only and should not be construed as legal, medical or tax advice. It provides general information and is not intended to encompass all compliance and legal obligations that may be applicable. This information and any questions as to your specific circumstances should be reviewed with your respective legal counsel and/or tax advisor as we do not provide legal or tax advice. Please note that this information may be subject to change based on legislative changes. © 2021 Sequoia Benefits & Insurance Services, LLC. All Rights Reserved