Updated Tax Credits for Paid Sick Leave

As an accountant or bookkeeper, the amount of knowledge you need at your fingertips is staggering. Here is something that you may have missed earlier in terms of tax credits for paid sick leave.

The American Rescue Plan Act (ARPA), passed in March of this year, provided updates to tax credits for paid sick leave related to COVID-19 under the Families First Coronavirus Response Act (FFCRA). Under the ARPA, you can claim FFCRA tax credits between April 1, 2021 - September 30, 2021.

According to the IRS, these tax credits apply to employers who pay wages for leave taken by employees who are unable to work (or telework) for reasons related to COVID-19, including leave taken to receive COVID–19 vaccinations or to recover from any injury, disability, illness or condition related to the vaccinations. Any business, including tax-exempt organizations, with fewer than 500 employees is eligible, including some governmental employers. Self-employed individuals are eligible for similar credits. 

The paid leave tax credits are credits against the employer's share of the Medicare tax and are refundable. The amount of the tax credits is equal to the sick leave wages paid for up to two weeks (80 hours) for an employee dealing with COVID themselves, limited to $511 per day and $5,110 in the aggregate, at 100% of the employee's regular rate of pay. The tax credit for sick leave wages an employee receives for caring for a family member with COVID (80 hours) is limited to $200 per day or $2,000 in the aggregate, at 2/3rds the employee’s regular rate of pay. The tax credit for paid family leave wages is equal to the family leave wages paid for up to twelve weeks, limited to $200 per day and $12,000 in the aggregate, at 2/3rds of the employee's regular rate of pay. (wording change)

Most employers can claim the credit on Form 941, If you have questions about how to claim the credit in your payroll software, your payroll provider should be able to assist you.

Important Notes

1.Under the ARPA, the paid leave limit (e.g., 80 hours) resets on April 1, 2021. This means that an employee who used up 80 hours of COVID-19 related sick leave is eligible for a new set of 80 hours.

2. In additional to the original reasons that an employer could receive tax credits for providing paid leave for COVID-19 related reason, there are two new reasons that such paid sick leave is eligible for this tax credit:

• • the employee is obtaining the COVID-19 vaccine, 
  • the employee is recovering from any illness or condition resulting from the vaccine, or

3. Employees may take up to 12 weeks (two weeks of paid sick leave followed by up to 10 weeks of paid expanded family & medical leave) of paid Emergency FMLA for all qualifying reasons under the Emergency Family and Medical Leave Expansion Act (EFMLEA) and Emergency Paid Sick Leave (EPSL).