The Families First Coronavirus Response Act’s (FFCRA) paid sick leave and expanded family and medical leave requirements for employers expired on December 31, 2020. Employers are no longer legally required to provide such leave. However, the Consolidated Appropriations Act (CAA), 2021, signed into law on December 27, 2020, extended the employer tax credits available to employers who voluntarily pay eligible employees sick leave and/or expanded family and medical leave through March 31, 2021, as stated in Section 286 of the new relief bill (“Extension of Credits for Paid Sick and Family Leave”).
While still in the midst of the COVID-19 pandemic, many employers are faced with the same questions now as in 2020 when they find that employees are forced to miss time due to illness, exposure to the virus, quarantine requirements, etc. The CAA provision extending the payroll tax credit available to employers is an option for those looking to help employees through difficult circumstances that are caused by the coronavirus. Rules under the FFCRA still apply though for claiming such credits, including eligibility and recordkeeping requirements. For private employers, the first rule to be eligible is having less than 500 employees (there is no size criteria for public employers). For complete details of FFCRA eligibility and recordkeeping requirements, please refer to our March 25, 2020 blog post titled Families First Coronavirus Response Act.
Employers are still entitled to payroll tax credits for FFCRA leave that was granted to employees during the time period in 2020 where provisions of this Act were still in effect. Employers also still remain liable to provide such paid benefits as required under the FFCRA through December 31, 2020.
The CAA temporarily extended employers eligibility to claim payroll tax credits for voluntary paid leave granted to employees during the first quarter of 2021. The cost of providing the following benefits can be used by employers to directly reduce their payroll taxes through March 31, 2021:
- Emergency Paid Sick Leave – Employees are to receive two weeks of paid sick leave at their regular pay rate for self-care. Two weeks is defined as up to 80 hours if a full-time employee or, if part-time, an amount equal to the average number of hours worked in a two-week period. Employers may receive a credit of 100% of the employee’s pay (up to $511 per day or $5,110 in total per employee).
- Emergency Paid Sick Leave to Care for Others – Employees are to receive two weeks (up to 80 hours, prorated for part-time employees) of paid sick leave at 2/3 of their normal pay rate if they are unable to work because of a need to care for others. Employers may receive a credit of 2/3 of the employee’s pay (up to $200 per day or $2,000 in total per employee).
- Expanded Family and Medical Leave – Employees are to receive an additional 10 weeks of paid family and medical leave at 2/3 of their normal pay rate if they are unable to work because of a need to care for a child under age 18 whose school is closed or childcare provider is unavailable for reasons related to COVID-19. Employers may receive a credit of 2/3 of the employee’s pay (up to $200 per day or $10,000 in total per employee). As was previously the case, the first two weeks of family and medical leave may be unpaid. Employees can utilize any PTO available to them during these two weeks; however, the employer cannot require the employee to use PTO during the 10 additional weeks provided. Eligible employees for this benefit are all employees having been employed for at least 30 calendar days. Employers with fewer than 50 employees may be exempt from the expanded family and medical leave if it would interfere with their ability to continue to conduct business.
To allow for the most immediate impact, qualifying employers can retain the federal withholding, Social Security, and Medicare taxes that would normally be submitted as payroll tax deposits. If the payroll taxes exceed the calculated credit, the balance should be remitted to the IRS, as normal, through the EFPTS payment system. However, if the credit available exceeds the payroll taxes retained, the employer can choose to file a claim for an advanced refund on Form 7200 prior to filing the quarterly Form 941 or the refund can be requested when filing Form 941 after the end of the quarter.
The credit is also available to self-employed individuals, to use in offsetting the self-employment tax. The same eligibility requirements and dollar amounts noted above will apply. The credit can be claimed on the self-employed individual’s 2020 income tax return or can be used immediately to reduce quarterly estimated tax payments. The same good faith effort documentation rules to support such eligible paid leave applies.
Payments made to employees under the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Act (FMLA) are not considered wages under tax code sections 3111 and 3221; therefore, they are not subject to FICA taxes. The amount received as credits are considered gross income and the related wages are deductible.
Employers need to understand the amount of paid leave for which they can seek tax credits. If voluntarily choosing to provide such benefits to employees between January 1, 2021 and March 31, 2021, any FFCRA leave granted during 2020 must be considered and used to reduce paid leave that is eligible for a payroll tax credit in 2021. Thus, if all leave allowed for an employee was exhausted in 2020, then any benefit voluntarily paid by their employer in 2021 is not eligible for a payroll tax credit. For FMLA leave purposes, the eligibility of an employee for such benefit is still dependent on the 12-month period that their employer uses to measure, whether calendar year, fiscal year, or a rolling period.