COVID-19 Paid Leave Requirements and Tax Benefits

In this last year, your employees may have needed leave from their jobs due to a circumstance related to COVID-19. In 2020, federal Acts signed into law mandated certain employers provide paid leave for qualified employees.

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April 25th, 2021
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In this last year, your employees may have needed leave from their jobs due to a circumstance related to COVID-19. In 2020, federal Acts signed into law mandated certain employers provide paid leave for qualified employees.

Since March of this year, providing paid leave is now voluntary. When provided, the employer can receive tax credits. Furthermore, eligible self-employed individuals can claim COVID-19 related sick and family leave tax credits.

There is a detailed story behind the laws, how they were extended and modified in 2021, and how they could impact your business or self-employment. Here is a summary.

How we got here

  • The American Rescue Plan Act of 2021 (ARPA) signed by President Biden on March 11, 2021, allows employers with fewer than 500 employees to continue to receive tax credits for voluntarily offering employees paid leave under the Families First Coronavirus Response Act (FFCRA).
  • The original terms of FFCRA expired on December 31, 2020. Then, employers were required to provide paid leave. Now the ARPA extends the FFCRA tax credit, but not the mandate to provide paid leave.
  • Under the ARPA, employers can receive tax credits until September 30, 2021, if they choose to continue providing leave under the FFCRA’s Emergency Paid Sick Leave (EPSL) and expanded Family and Medical Leave (E-FML).

The new ARPA terms

The ARPA enhances EPSL and E-FML in several ways:

  • Qualifying reasons expanded: Employees must meet qualifying reasons to be eligible for leave. In addition to the existing qualification noted here in this DOL publication (scroll to the section called “Qualifying Reasons for Leave”) the ARPA adds three more:
    • Obtaining a COVID-19 immunization
    • Recovering from any injury, disability, illness, or condition related to a COVID-19 immunization
    • Seeking or awaiting the results of a COVID-19 test or diagnosis because either the employee has been exposed to COVID or the employer requested the test or diagnosis
  • A restart of the 10-Day Limit for Paid Sick Leave: Employers may receive a tax credit for employees who have already used at least 10 days of EPSL leave. On April 1, 2021, the 10-day limit resets.
  • Enhanced E-FML: E-FML had required a total of 12 weeks of leave, with 10 weeks being paid at two-thirds of regular wages (up to $200 per day). The ARPA allows employers to voluntarily offer E-FML as a paid benefit for the full 12 weeks.
  • Additional Non-Discrimination Rules: Employers providing leave may not discriminate in favor of highly compensated employees, full-time employees, or based on employment tenure.

For the self-employed

The IRS has a new form available for eligible self-employed individuals to claim sick and family leave tax credits under the FFCRA. Use the new form is IRS Form 7202. Form 7202 helps you calculate the tax credits.

Once calculated, you enter the information into Form 1040. Claims for tax credits for leave taken April 1- December 31, 2020, are included in your 2020 Form 1040. For leave taken January 1- March 31, 2021, you enter the information on your 2021 Form 1040. You must maintain appropriate documentation to establish eligibility.

Reach out for more guidance

Please consider the above a high-level summary. If you plan to voluntarily offer paid leave, you’ll want to find out more about the circumstances for leave, the pay, and the tax credits available. I highly recommend that you reach out to your tax professional for further guidance.

 

Additional sources

Voluntary FFCRA Leave Expanded and Extended Until September 30, 2021

New IRS Form for Self-Employed to Track and Claim COVID-19 Sick and Family Leave Tax Credits

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