The IRS recently issued FAQs that address the tax credits available under the American Rescue Plan Act of 2021 (the “ARP”) by employers with fewer than 500 employees and certain governmental employers without regard to the number of employees (“Eligible Employers”) for qualified sick and family leave wages (“qualified leave wages”) paid with respect to leave taken by employees beginning on April 1, 2021, through September 30, 2021, as well as the equivalent credits available for certain self-employed individuals.
The ARP amended and extended the tax credits available to Eligible Employers providing paid sick and family leave consistent with the leave provided under the Families First Coronavirus Response Act (“FFCRA”). Under the FFCRA, enacted March 18, 2020, employers were required to provide paid leave through two separate provisions: (1) the Emergency Paid Sick Leave Act (“EPSLA”), under which employees received to up to 80 hours of paid sick time when they were unable to work for certain reasons related to COVID-19, and (2) Emergency Family and Medical Leave Act (“Expanded FMLA”), under which employees received paid family leave to care for a child whose school or place of care was closed or child care provider was unavailable for reasons related to COVID-19. The obligation for employers to provide paid leave under the EPSLA and the Expanded FMLA applied to qualified leave wages paid with respect to leave taken by employees beginning on April 1, 2020, through December 31, 2020. The FFCRA provided that Eligible Employers providing paid leave that satisfied the requirements of the EPSLA and the Expanded FMLA for the periods of time during which employees were unable to work (including telework) were permitted to claim fully refundable tax credits to cover the cost of the paid leave wages. Certain self-employed persons in similar circumstances were entitled to similar credits. The Relief Act extended the tax credits available to Eligible Employers for paid sick and family leave that would have satisfied the requirements of the EPSLA or Expanded FMLA, as amended for purposes of the Relief Act, for qualified leave wages paid with respect to leave taken by employees through March 31, 2021. Under the ARP, refundable tax credits.
Under the ARP, refundable tax credits are available to Eligible Employers providing paid sick and family leave wages that otherwise would have satisfied the requirements of the EPSLA and Expanded FMLA, as amended for purposes of the ARP, paid with respect to leave taken by employees beginning on April 1, 2021, through September 30, 2021. The ARP codified these credits in sections 3131 through 3133 of the Code. These tax credits are increased by the Eligible Employer’s cost of maintaining health insurance coverage allocable to the qualified leave wages (“allocable qualified health plan expenses”) and certain amounts paid under collectively bargained agreements by the Eligible Employer that are properly allocable to the qualified leave wages (“certain collectively bargained contributions”). Under section 3133 of the Code, the tax credits are also increased by the employer’s share of social security and Medicare taxes imposed on the qualified leave wages.
Self-employed individuals are entitled to equivalent credits based on similar circumstances in which the individual is unable to work. For leave required under the FFCRA prior to January 1, 2021, the Wage and Hour Division of the Department of Labor (DOL) administers the EPSLA and the Expanded FMLA and issued regulations at 29 CFR Part 826 and posted FAQs and relevant information about the paid leave provisions.