Tax credit available to employers that voluntarily provide FFCRA COVID-19-related paid leave during first quarter of 2021

Under the Families First Coronavirus Response Act (FFCRA), for the period April 1 through Dec. 31, 2020, employers having fewer than 500 employees on an aggregated basis were required to provide specified COVID-19-related paid sick leave and/or paid family leave to their eligible employees, and were entitled to claim a tax credit related to that leave. 

The requirement to provide such paid leaves was terminated for periods after Dec. 31, 2020. However, under recently passed legislation, a credit is now available for eligible employers that voluntarily provide paid COVID-19-related leave in the first quarter of 2021. 

Federal payroll tax credit

Employers that provided FFCRA-mandated leave payments were not subject to the employer portion of the Social Security tax on the leave pay, and were/are entitled to claim a fully refundable federal payroll tax credit equal to the sum of (i) the paid leave amounts, (ii) the employer’s cost of providing health insurance for the employee during the leave period (increased by the employee’s own contributions if made on a pre-tax basis), and (iii) the employer portion of the Medicare tax on the leave pay. 

First quarter 2021 voluntary paid leave

The recently passed Consolidated Appropriations Act, 2021, did not extend the FFCRA leave mandates. However, it did establish that for an employer that was or would have been subject to the FFCRA requirements for 2020, if the employer voluntarily complies with the FFCRA rules during the first quarter of 2021 (i.e., as if the rules continued to apply), they will be eligible for the tax credit for paid sick and/or family medical leaves during that quarter.

Summary of FFCRA paid leave eligibility and terms

Employee’s own condition

An employee is entitled to paid sick leave if their employer has work for them but they are unable to work or telework due to (i) a COVID-19-related federal, state, or local quarantine or isolation order, (ii) having been advised by a health care provider to self-quarantine due to COVID-19 concerns, or (iii) experiencing symptoms of COVID-19 and seeking a medical diagnosis. Such an employee is entitled to paid sick leave for up to 10 days (up to 80 hours) at the employee’s regular rate of pay – or, if higher, the federal minimum wage or any applicable state or local minimum wage – limited to a maximum amount of $511 per day ($5,110 total).

Caring for employee’s family or other individuals

Paid sick leave is available for an employee for whom the employer has work but who is unable to work or telework due to (i) caring for an individual who is subject to a COVID-19 federal, state, or local quarantine or isolation order or has been advised by a health care provider to self-quarantine due to COVID-19 concerns, or (ii) caring for the employee’s child (under age 18, or any age if incapable of self-care) because the child’s school or place of care is closed, or the child’s paid care provider is unavailable. due to COVID-19. Such an employee is entitled to paid sick leave for up to two weeks (up to 80 hours) at two-thirds of the employee’s regular rate of pay – or, if higher, the federal minimum wage or any applicable state or local minimum wage – limited to a maximum amount of $200 per day ($2,000 total).

Caring for employee’s child due to school closure or unavailability of child care

Paid family and medical leave is available for an employee for whom the employer has work but who is unable to work or telework due because of a need to care for the employee’s child (under age 18, or any age if incapable of self-care) whose school or place of care is closed or whose child care provider is unavailable due to COVID-19. Such an employee is entitled to paid family and medical leave for up to 10 weeks at two-thirds of the employee’s regular rate of pay – or, if higher, the federal minimum wage or any applicable state or local minimum wage – up to $200 per day ($10,000 total). 

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