American Rescue Plan Act Extends Tax Credits for COVID-19 Leave
On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (“ARPA”). Among other provisions aimed at economic recovery, ARPA extends employer tax credit opportunities for certain forms of paid leave related to COVID-19.
Background. The Families First Coronavirus Relief Act (“FFCRA”) required employers with fewer than 500 employees to provide partially paid COVID-19 leave to employees under the Emergency Paid Sick Leave Act (“EPSLA”) and the Emergency Family and Medical Leave Act (“EFMLA”) through December 31, 2020. Employers that provide such leaves to employees received a tax credit for all wages paid to employees under the laws. Although FFRCA provisions became voluntary on January 1, 2021, employers could still receive a tax credit for qualified wages paid during leave provided through March 31, 2021 (under the Consolidated Appropriations Act signed into law by President Trump).
Details of Extended COVID-19 Leave. Effective April 1, 2021, ARPA authorizes eligible employers to continue (or begin) to receive tax credits for providing leave under EPSLA and EFMLA. Employers that decide to do so:
- May receive a tax credit for up to 10 days of paid sick leave, up to $200 or $511 per day, depending on the reason for the leave (see below). Beginning April 1, all employees may be eligible to take these 10 days of leave, even if they have already used their first bank of 10 EPSL leave days.
- May receive a tax credit of up to $511 per day for new types of Emergency Paid Sick Leave, including: (i) leave where an employee is waiting for the results of a COVID-19 test after being exposed (to COVID-19) or asked to get a test by the employer; (ii) leave for an employee to obtain a COVID-19 vaccine; and (iii) leave for an employee to recover from an injury, disability, illness, or condition related to getting a COVID-19 vaccine.
- May receive a tax credit of up to $200 per day (and $12,000 in the aggregate) for Emergency Family Medical Leave. ARPA expands the scope of emergency family leave to include all of the reasons that an employee can take emergency paid sick leave. (Under FFCRA, emergency family leave applied only to employees unable to work due to a need for leave to care for a minor child if the child’s school or place of care was closed.) In addition, under FFCRA, the first two weeks of emergency family leave were required to be unpaid. ARPA removes this requirement, so that all 12 weeks of emergency family leave can be now paid.
- NOTE: Emergency family leave is not in addition to employees’ 12 weeks of leave entitlement under FMLA. Employees who have already used some or all of their FMLA or EFMLA leave will not be entitled to additional leave.
- Must offer the leave to all employees, including part-time or newly-hired employees. This means that an employer may not restrict its provision of emergency paid sick leave or family leave to highly compensated employees, full-time employees, or employees with a certain level of seniority or amount of tenure.
Employer Takeaway. The tax credits made available to employers under ARPA ends on September 30, 2021. Employers that decide to continue (or start) to provide paid sick and paid family leave will need to update their FFCRA leave forms and policies, and ensure that they maintain adequate documentation to claim the tax credits.