Although there is no longer a requirement to pay emergency sick and family leave benefits in 2021, there is still an incentive and benefit to doing so.
Key insights
- FFCRA required certain employers to pay wages and benefits to employees who were impacted by COVID-19 through December 31, 2020.
- CAA 2021 did not renew that obligation to pay but extended the ability for employers to claim a dollar-for-dollar payroll tax credit through March 31, 2021, if an organization continued to pay wages under these circumstances.
- The American Rescue Plan also did not renew the requirement to pay; however, it extended the availability of the tax credit to employers through September 30, 2021.
- The American Rescue Plan also increased the maximum tax credit for emergency family leave from $10,000 to $12,000 per employee, and reset the clock to claim the benefit on eligible wages paid beginning on April 1, 2021.
Questions about economic relief legislation tax credits?
The Families First Coronavirus Response Act (FFCRA) was one of the earliest congressional responses to the COVID-19 pandemic. Included in the FFCRA was mandatory leave for employees impacted in specified ways by COVID-19. To help employers fund the mandatory leave, FFCRA provided employers with a dollar-for-dollar refundable payroll tax credit.
The FFCRA was set to expire on December 31, 2020. The Consolidated Appropriations Act, 2021 (CAA 2021) extended the FFCRA payroll tax credits through March 31, 2021. On the heels of the CAA 2021, the American Rescue Plan (ARP) extended the FFCRA payroll tax credits through September 30, 2021.
Read on to learn about the interplay between the newest COVID-19 legislation and FFCRA and how it could impact your strategies for savings and recovery of related payroll dollars.
Refresher on FFCRA
Private employers with fewer than 500 employees and governmental employers of all sizes were required to provide the leave described below effective April 1, 2020. The mandatory leave obligation expired December 31, 2020.
Paid sick leave
FFCRA required employers to provide paid sick leave of up to 80 hours for full-time employees who needed time off for one of the following five circumstances:
- Quarantine order by federal, state, or local authorities related to COVID-19
- Employee self-quarantine as advised by a health care provider
- Employee experiencing COVID-19 symptoms and seeking medical diagnosis
- Employee caring for an individual who is quarantined
- Employee unable to work to care for children due to school or childcare closures
Maximum leave amounts — The paid sick leave benefits were capped at $511 per day for the employee’s own care, and $200 per day to care for another individual.
Application to part-time employees — Part-time employees were required to be paid for the average number of hours they would normally work over a two-week period.
Paid Emergency Family Leave (E-FMLA)
The FFCRA required employers to provide 12 weeks of E-FMLA to employees who could not work (or telecommute) due to child care concerns related to COVID-19. The first two weeks of E-FMLA was unpaid, which means the employers was only required to provided 10 weeks of paid E-FMLA. An employee, however, could use two weeks of paid sick leave or other types of leave to offset the two weeks of unpaid E-FMLA. Employees were eligible for E-FMLA if they were employed for 30-days.
Maximum leave amounts — The E-FMLA benefits were capped at $200 per day up to a maximum of $10,000 for the year.
Application to part-time employees — Part-time employees were required to be paid for the same number of hours per day determined under the paid sick leave rules (i.e., two-week period) up to 10 weeks.
Payroll tax credit
Under FFCRA, employers could be reimbursed through federal employment tax credits equal to 100% of the amount paid for paid sick leave and E-FMLA plus allocable costs of providing group health insurance.
Taxation of the payroll tax credit
The refundable payroll tax credit must be added to gross income should the employer elect to claim the credit either on a timely filed Form 941 or an amended Form 941-X. Neither the CAA 2021 nor the ARP changed the rules regarding taxation of the credit.
CAA 2021
CAA 2021 did not extended the mandatory leave provisions in FFCRA, but instead allowed employers to voluntarily provide any remaining paid sick leave or E-FMLA employees might have available and claim the payroll tax credit for this leave through March 31, 2021. If an employee used up all their paid sick leave and E-FMLA in 2020, an employer can’t provide additional paid sick leave and/or E-FMLA from January 1, 2021, through March 31, 2021, and claim a payroll tax credit.
ARP
The ARP expanded the FFCRA payroll tax credits through September 30, 2021. Like CAA 2021, the ARP does not make the leave mandatory but allows employers to voluntarily provide the leave and claim dollar-for-dollar payroll tax credits. In addition to extending the payroll tax credits, the ARP made several other changes to the FFCRA.
Maximum leave amounts reset
Unlike CAA 2021, the ARP resets the maximum paid sick leave and E-FMLA employers can provide their employees. This means that if an employer claimed the maximum credit for an employee for wages paid from April 1, 2020, through March 31, 2021, a new opportunity to qualify for the credit will exist for wages paid to that same employee from April 1, 2021, through September 30, 2021.
Paid sick leave qualifying circumstances expanded
The eligibility criteria for paid sick leave and E-FMLA was expanded to include:
- Employee seeking or awaiting the results of a test for or a diagnosis of COVID-19 because they were exposed to COVID-19 or the employer requested the test or diagnosis
- Employee obtaining the COVID-19 vaccine
- Employee recovering from any injury or condition related to immunization
E-FMLA qualifying circumstances expanded
Under FFCRA, E-FMLA was only available due to child care concerns related to COVID-19. ARP expands the qualifying reasons to include all those available under paid sick leave (e.g., subject to quarantine order, experiencing COVID-19 symptoms and seeking medical diagnosis, caring for someone subject to a COVID-19 quarantine order or advised to quarantine, and the new qualifying reasons listed above).
E-FMLA credit for full 12 weeks
E-FMLA is no longer subject to the first two weeks being unpaid. This means the maximum amount of the payroll tax credit for E-FMLA increases from $10,000 to $12,000 per employee.
Credit available to state and local government employers
Under FFCRA state and local government employers could not claim the payroll tax credit. Under ARP, it appears that the credit has been extended to these employers. This means state and local governments will be eligible for dollar-for-dollar payroll tax credits if they voluntarily choose to provide paid sick leave and/or E-FMLA between April 1, 2021, and September 30, 2021.
Beware of double-dipping economic relief programs
In an effort to prohibit double dipping, the FFCRA payroll tax credit, as well as most of the economic relief programs, may not be claimed by using the same payroll dollars that are utilized for any other program. Therefore, consider how payroll dollars are being applied to various programs and track them carefully. From a value perspective, PPP dollars tend to have the maximum benefit because they are both completely forgiven, and they do not carry income tax consequences.
FFCRA credits are likely the most valuable because, although they must be added back to the adjusted gross income for the taxpayer, they are a dollar-for-dollar credit.
Third most valuable is the employee retention credit (ERC), which was also expanded by the American Rescue Plan, and can generate a 70% benefit by quarter for each eligible employer. The ERC credits must be added back to the wage expense.
Finally, other federal income tax credits that are not refundable and reduce federal income tax to the extent that they were utilized for qualified research expenses, the Work Opportunity Tax Credit, or the Employer Credit for Paid Family and Medical Leave will also add value as a smaller percentage of recovery of the payroll dollars paid to eligible employees.
FFCRA payroll tax credit provisions as modified by CAA 2021 and ARP
| FFCRA | CAA 2021 | ARP | |
|---|---|---|---|
| Mandatory for eligible employers | Yes | No | No |
| Qualifying reasons expanded | N/A | No | Yes |
| Max credit per employee for paid sick leave | $5,110 – $2,000 (depends on qualifying reason) |
$5,110 – $2,000 (max. did not reset Jan. 1, 2021) |
$5,110 – $2,000 (max. reset April 1, 2021) |
| Max credit per employee for E-FMLA | $10,000 | $10,000 (max. did not reset Jan. 1, 2021) |
$12,000 (max. reset April 1, 2021) |
| Credit increased for allocable health insurance costs | Yes | Yes | Yes |
| Wages subject to employer Social Security tax | No | No | Yes (however, the payroll tax credit is increased by this amount) |
| Credit available to local and state government employers | No | No | Yes |
How CLA can help
Coordinating the reimbursement and use of payroll dollars is not an easy task, and CLA can help guide you through that process. Our professionals can help identify which tax credit programs are available and may apply to your organization.
In addition, many leaders have questions regarding COVID-19 and its impact on their human capital and tax situation. CLA’s human resources consulting and outsourcing professionals and tax professionals can help you navigate your organization’s specific circumstances. Remember to consult with qualified employment law counsel before adopting any new HR policies.