Congress extended the availability of refundable tax credits for Eligible Employers who provide paid family leave or sick leave from April 1, 2021 to September 30, 2021 in connection with COVID-related illness. Under ARPA, employers with fewer than 500 employees and certain governmental employers (without regard to the number of their employees) that provide paid sick or family leave that would otherwise qualify under the Emergency Paid Sick Leave Act or Emergency Family and Medical Leave Expansion Act ("Eligible Employers") are eligible for tax credits relating to the wages paid during the applicable leaves.
Leave that will qualify Eligible Employers for the tax credit under ARPA applies to an employee who is unable to work because of the employee's personal health status or the employee's need to care for others, which includes leave needed because the employee:
- is under a Federal, State, or local quarantine or isolation order related to COVID-19 or has been advised by a health care provider to selfquarantine due to concerns related to COVID-19;
- has COVID-19 symptoms and is seeking a medical diagnosis, is seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of COVID–19 and the employee has been exposed to COVID–19 or the employee's employer has requested the test or diagnosis;
- is obtaining the COVID-19 vaccine, or recovering from conditions related to obtaining the COVID-19 vaccine;
- is caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19, or has been advised by a health care provider to self-quarantine due to concerns related to COVID-19; or
- is caring for a child whose school or place of care is closed, or whose child care provider is unavailable due to COVID-19 precautions.
On June 11, 2021, the IRS issued extensive FAQs addressing how to implement the applicable leaves and qualify for the tax credits. The FAQs cover a wide range of topics, including what documentation an employer should maintain to substantiate that an employee qualifies for a leave, the amount of the available credits and how to calculate the same, how to claim the tax credits on an employer's quarterly tax return, how to claim the tax credit when a 3rd party payer reports the employer's federal employment taxes (such as a reporting agent, a payroll service provider, a PEO , CPEO, or Section 3504 agent), and how to coordinate paid sick leave and paid family leave for a single employee
Eligible Employers who wish to offer COVID-related paid sick leave and family leave and wish to qualify for the tax credits should take the following steps:
- Review their existing paid-leave policy as it relates to COVID-related reasons, and update the same to incorporate the new guidance provided by the IRS and extend it through September 30, 2021.
- Review what documentation the employer requires from employees to substantiate the need for a leave, and update the same to conform with the requirements of ARPA. (Note: It is permissible for an employer to add additional substantiation requirements to what is required under ARPA.)
- Review the FAQs to confirm their understanding of the requirements under ARPA, and work with their payroll provider to implement the leaves and report the related wages on Form 941.
- Communicate the available paid leaves to employees.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
