Tax Credit Extended to Those Providing Paid Family & Medical Leave

Under separate provisions of the Consolidated Appropriations Act, 2021, the credit for coronavirus related paid sick and family leave, originally part of the Families First Coronavirus Response Act, is extended through March 31, 2021. The Families First Coronavirus Response Act (FFCRA) provides paid sick leave and expands family and medical leave for COVID-19 related reasons and creates the refundable paid sick leave credit and the paid childcare leave credit for eligible employers (under 500 employees). The FFCRA was enacted during the earlier stages of the Covid-19 pandemic, and provided for Emergency Paid Sick Leave (“EPSL”) and Expanded Family Medical Leave (“EFMLA”) to eligible employees who are unable to work for reasons related to the ongoing health pandemic. The FFCRA requires employers with fewer than 500 employees to provide up to 80 hours of Emergency Paid Sick Leave and up to 12 weeks of Public Health Emergency Leave due to COVID-19-related reasons. The FFRCA also provides employers with a payroll tax credit equal to 100 percent of the cost of the paid leave taken by employees in accordance with the Act. It should be noted that the mandate to provide paid leave under the FFCRA expired on December 31, 2020, and the recently passed stimulus package will not extend the requirement that employers provide EPSL or EFMLA beyond this date. The relief bill however did extend this tax-credit to employers who voluntarily provide FFCRA-qualifying leave until March 31, 2021.

An Eligible Employer may claim a fully refundable tax credit equal to 100 percent of the qualified family leave wages (and allocable qualified health plan expenses and the Eligible Employer’s share of Medicare tax on the qualified family leave wages) it pays.

Qualified family leave wages are wages for social security and Medicare tax purposes or compensation that Eligible Employers must pay eligible employees for periods of leave during which they are unable to work or telework due to a need for leave to care for a child of such employee if the child’s school or place of care has been closed (including the closure of a summer camp, summer enrichment program, or other summer program), or because the child care provider of the child is unavailable, for reasons related to COVID-19. The first ten days for which an employee takes leave for this reason may be unpaid. However, during that 10-day period, an employee may be entitled to receive qualified sick leave wages as provided under the ESPLA or may receive other forms of paid leave, such as accrued sick leave, annual leave, or other paid time off under the Eligible Employer’s policy. After an employee takes leave for ten days, the Eligible Employer must provide the employee with qualified family leave wages for up to ten weeks.

This refundable credit is applied against employer social security taxes on wages paid to all employees. The FFCRA gives a further tax break to employers since the paid leave wages are exempt from the employer’s share of social security tax.

Note that the Department of Labor (DOL) provides additional guidance regarding required paid sick leave and paid family leave here:

For more information on Covid-19 related tax credits for required paid leave you can also review more IRS information and FAQs here

Please contact us should you have any questions.