UNDERSTANDING TAX CREDITS FOR PAID SICK AND FAMILY LEAVE
Right now, employers want to do all they can to encourage their employees to get vaccinated as soon as possible to protect their teams, their customers, and the community at large. Widespread vaccination is a necessary step towards businesses resuming normal operations and our overall coronavirus recovery efforts.
However, employees who have to take time off without pay to get their vaccine are less likely to get vaccinated. Did you know employers can get tax credits for providing paid leave to employees to get the COVID vaccination?
The American Rescue Plan Act (ARPA), which became law in March 2021, expanded the reasons an employee can take FFCRA-like paid sick leave to include getting the COVID-19 vaccine and recovering from the effects of the vaccine. The employer will then be reimbursed for this paid sick leave through payroll tax credits.
Employers with Less than 500 Employees
Tax credits for coronavirus-related paid sick and family leave are available to employers with fewer than 500 employees through September 30, 2021. These types of leave were originally created under the Families First Coronavirus Response Act (FFCRA) and are still sometimes referred to as FFCRA leave.
Paid Sick and Family Leave Optional
When the FFCRA was originally passed in 2020, paid sick and family leave was mandatory for employers. As of January 1, 2021, it became optional. Employers can decide if they would like to offer paid sick and family leave. Employers may offer both types of leave (Emergency Paid Sick Leave and Expanded FMLA), one type of leave, or none. They may offer employees paid sick and family leave for the full window through September 30, 2021, or for a shorter period of time.
Leave Types & Duration
ARPA (and FFCRA) provides two types of paid leave to employees:
- Emergency Paid Sick Leave (EPSL) of up to 2 weeks (80 hours).
- Expanded FMLA (EFMLA) of up to 12 weeks. (ARPA expanded the length of time to 12 weeks. Previously employees could only get 10 weeks.)
Note that the two weeks of EPSL that an employee is eligible for was reset on April 1, 2021. If an employee had already used 80 hours of EPSL before April 1, 2021, that employee may now take an additional 80 hours through September 30, 2021.
Rate of Pay/Tax Credit for Leave
For sick leave, employers can receive a tax credit for the employee’s normal rate of pay up to $511 per day up to 2 weeks ($5,110 total per employee).
For family leave, employers can receive a credit for 2/3 of the employee’s normal rate of pay up to $200 per day up to 12 weeks ($12,000 total per employee).
Reasons for EPSL and EFMLA Leave
An employee may take paid sick or family leave for one of the following reasons:
- Subject to a Federal, State, or local quarantine or isolation order related to COVID-19
- Advised by a health care provider to self-quarantine related to COVID-19
- Experiencing COVID-19 symptoms and is seeking a medical diagnosis
- Caring for an individual subject to an order described above or self-quarantine as described above
- Caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19
- Seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19 after being exposed to COVID-19 (the employer can request the employee seek a test or diagnosis)
- Obtaining vaccination
- Recovering from any injury, disability, illness, or condition related to vaccination
If the employee is able to work remotely while taking leave for one of these reasons, then he or she would not be eligible for paid leave.
How to Claim the Credit
Employers will report coronavirus-related paid sick and family leave wages on their Form 941. This a quarterly tax form where an employer reports income tax, plus social security and Medicare taxes. (If you are an Anthros client, Anthros does this for you).
If you know you will be claiming these credits on your Form 941, the IRS says you can keep the federal employment taxes that you would otherwise have deposited, including payroll taxes collected from employees. If the amount you hold back is less than the amount you paid in sick and family leave wages, you can request an advance of the credits by filing IRS Form 7200.
The IRS recently released a quick summary to help employers understand these tax credits.
If you received a forgivable Paycheck Protection Program (PPP) loan, can you file to receive FFCRA leave tax credits? This is a question we receive frequently from clients, and the answer is yes. However, you may not receive FFCRA tax credits for sick and family leave wages for which loan forgiveness will be granted. (This applies to the Employee Retention Credit as well—the IRS will not allow double dipping!)
Anthros clients can reach out to their Client Relations Manager for assistance understanding paid sick and family leave and employer tax credits.
For more information about the American Rescue Plan Act and provisions affecting employers, please visit our blog.