FFCRA Tax Credit Extension and Leave Expansion

Information Current as of March 12, 2021

The American Rescue Plan Act of 2021 (the “Rescue Act”), which was signed into law by President Biden on March 11th, extends payroll tax credits for eligible employers under the Families First Coronavirus Response Act (“FFCRA”) and allows employers to provide additional emergency paid leave to eligible employees on a voluntary basis.

Tax Credit Extension

FFCRA required private employers with less than 500 employees and certain public sector employers to provide paid emergency sick leave and family/medical leave for certain COVID-related reasons to eligible employees from April 1 to December 31, 2020. To offset the costs associated with providing such leave, the FFCRA allowed employers to take a credit against their quarterly payroll taxes. Although the paid leave mandate expired on December 31, 2020, the tax credit was extended (by prior Congressional action) for eligible employers that allowed employees to take unused paid FFCRA leave through March 31, 2021. The Rescue Act further extends the tax credit period by allowing covered employers to receive a tax credit for voluntarily providing paid sick and family/medical leave under the FFCRA through September 30, 2021.

Expanded FFCRA Leave Reasons

Effective April 1, 2021, the Rescue Act also expands the reasons an employer may provide paid leave under the FFCRA and receive tax credits. Currently, tax credits are available to employers who provide paid leave to an employee who:

  • is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
  • has been advised by a health care provider to self-quarantine related to COVID-19;
  • is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
  • is caring for an individual subject to an order described in bullet point 1 or self-quarantine as described in bullet point 2 above;
  • is caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19; or
  • is experiencing any other substantially-similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.

Under the Rescue Act, employers also will be eligible to receive tax credits for providing paid leave to employees who are:

  • seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19, if the employee has been exposed to COVID-19 or the employer has requested such a test or diagnosis.
  • obtaining an immunization related to COVID-19 or recovering from any injury, disability, illness or condition related to such an immunization.

Additional Paid Sick Leave Allotment

Under the Rescue Act, employers may take a tax credit if they provide ten (10) additional days of paid sick leave to employees for use between April 1, and September 30, 2021, even if employees previously used some or all of the original ten (10) day sick leave allotment available under the FFCRA.

Expanded Family/Medical Leave

The Rescue Act eliminates the two-week waiting period for paid family/medical leave imposed by the FFCRA and expands the reasons an employer may take a tax credit for providing paid family/medical leave. In addition to receiving a tax credit for providing paid leave to employees who cannot work because they have to care for a child whose school or daycare is closed due to COVID, effective April 1, 2021, employers also may take a tax credit for allowing employees to take paid family/medical leave for any of the other qualifying reasons for paid sick leave. The Rescue Act also increases the aggregate wage cap on paid family/medical leave from $10,000 to $12,000.

Fair Warning

To ensure employers who choose to provide additional paid sick and family/medical leave administer that leave on a fair basis, the Rescue Act penalizes any employer that provides such leave in a manner that discriminates in favor of highly compensated employees, full-time employees, or on the basis of tenure, by eliminating the tax credit in such circumstances.

Practice Pointers

  • Providing emergency paid sick leave and family/medical leave from April 1 through September 30, 2021 is strictly voluntary, but employers who chose to do so receive a credit against their quarterly payroll taxes to offset the cost of providing leave.
  • Employers who choose to provide such leave should:
    • consider updating their forms and policies related to providing such leave to ensure they are consistent with the FFCRA amendments included in the Rescue Act.
    • establish/update record keeping protocols to ensure they obtain and maintain the necessary documentation to support the available tax credits.
  • Employers should be on the lookout for additional guidance from the Department of Labor that may provide more detailed compliance guidelines.
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