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Tax Credits Now Available for Employee Paid Sick/Family Leave According to IRS

On March 11, 2021, President Biden signed the American Rescue Plan Act (“ARPA”) into law. More recently, the Internal Revenue Service (“IRS”) issued guidance interpreting ARPA’s impact on the Families First Coronavirus Response Act tax credit provisions as they relate to local government employers. The guidance indicates that the revision to the Internal Revenue Code contained in ARPA that allows for employers to obtain tax credits for paid sick and family leave pursuant to the prior Families First Coronavirus Response Act (“FFCRA”) no longer excludes States and their instrumentalities and political subdivisions. Consequently, municipalities and school districts are able to apply for the tax credits. Only the federal government and certain non-profits are prohibited from obtaining tax credits.

The ARPA/FFCRA leave provisions are broader than the original FFCRA mandatory requirements. While ARPA/FFCRA paid sick and family leave remain voluntary through September 30, 2021, entities seeking the tax credits must comply with all original and amended requirements. Employers should consult with their tax professional regarding maintenance of the proper documentation necessary to apply for and obtain the tax credits.

The following is a breakdown of the voluntary ARPA/FFCRA leave provisions:

Emergency Paid Sick Leave

Employees are eligible for up to 80 hours of Emergency Paid Sick Leave (“EPSL”) if:

  1. The employee was subject to a federal, state or local quarantine or isolation order related to COVID-19;
  2. The employee was advised by their healthcare provider to self-quarantine because they were infected with or exposed to COVID-19 or because they were at high risk of complications from COVID-19;
  3. The employee is showing symptoms of COVID-19 and is seeking but has not yet received a medical diagnosis, the employee is seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID–19 and such employee has been exposed to COVID–19 or the employee’s employer has requested such test or diagnosis, or the employee is obtaining immunization related to COVID–19 or recovering from any injury, disability, illness, or condition related to such immunization (ARPA addition is in italics);
  4. The employee was caring for someone subject to a federal, state or local quarantine or isolation order related to COVID-19 or who was advised by their healthcare provider to self-quarantine for COVID-19 related reasons; or
  5. The employee was caring for their son or daughter because the child’s school or childcare facility was closed or the childcare provider was no longer available because of a COVID-19 related reason (this last reason, of course, is similar to the qualifying reason for EFMLA leave- see below).

The 80 hours of paid sick leave is reset as of April 1, 2021, so even if an employee used EPSL prior to that date, the employee’s eligibility is reset. The amount of wages paid for EPSL that will count toward an employer’s tax credit will not exceed $511 per day for EPSL taken for reasons 1, 2 and 3 (including the new provisions in reason 3) or $200 per day for leave taken for EPSL reasons 4 and 5. ARPA does not provide for a maximum amount of wages per employee that may be applied in determining the tax credit but does limit to ten (10), the number of days of leave permitted per employee.

Emergency Family and Medical Leave

Employees are also eligible for twelve (12) weeks of Emergency Family and Medical Leave Act paid leave (“EFMLA”) if they meet any of the eligibility criteria under EPSL. This is a major departure from the limitations of the original FFCRA EFMLA. Note that unlike the original FFCRA benefits, the entire twelve (12) weeks is paid, not just the final ten (10) weeks. Recall, however, that EFMLA simply amends the regular Family and Medical Leave Act. ARPA is silent as to whether employees who took a full twelve (12) weeks of EFMLA leave under the original FFCRA are entitled to an additional twelve weeks. As such, if an employee has used EMFLA or FMLA leave for any reason in the prior twelve months, the employee would only have any remaining weeks FMLA leave available to them to use for EFMLA. For example, if an employee used two weeks of FMLA for any reason in the prior twelve months, the employee would only have ten (10) remaining weeks available to them (depending on the accrual calculation method used by the employer).

Regarding the tax credits available under the ARPA, the amount of wages paid for EFMLA leave that will count toward an employer’s tax credit will not exceed $200 per employee per day or $12,000 per employee in total.

Should you have questions about implementing the voluntary ARPA/FFCRA leave benefits in your workplace, please do not hesitate to contact an attorney on Stock and Leader’s employment team.

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