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).
As the federal payroll tax credits essentially pay for the COVID-19-related leaves, eligible employers with employees impacted by COVID-19 may wish to voluntarily provide such leaves for the first quarter of 2021. However, employers should note that the federal payroll tax credit is only available for 2021 first quarter leaves for employees to the extent they did not exhaust their maximum paid FFCRA leave entitlements during 2020. Further, FFCRA leave credits constitute employer taxable income for federal income tax purposes. Employers should also be aware that FFCRA leave payments are fully taxable to employees and are required to be separately identified using Box 14 of the employee’s Form W-2.
If enacted, President-elect Joe Biden’s proposed stimulus plan would reinstate the FFCRA paid leave requirements (with some modifications) and federal payroll tax credit through the third quarter of 2021; however, the credit would be available solely for private employers with fewer than 500 employees and for state and local governments.
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
Coronavirus Resource Center
InsightMaryland sales and use tax now applies to digital productsJohn Iannotti, Marissa McClainRead what “digital products” and codes are taxed under House Bill 932, what should be used as a “customer tax address,” and more.
InsightVirginia updates Internal Revenue Code conformity legislationJohn Iannotti, Marissa McClainVirginia’s IRC conformity date has been updated to Dec. 31, 2020, and the state has decoupled from a number of CARES Act and other federal tax provisions. Read more.
InsightMaryland 2021 first quarter filing and payment due dates extendedJohn Iannotti, Marissa McClainRead how Maryland has changed due dates for corporate and pass-through entity income tax, sales and use tax, estimated income tax, and more due to COVID-19.
InsightHOSPITALITY: Food delivery ‘marketplace facilitators’ may complicate restaurants’ sales tax collectionJohn Iannotti, Suzanne WilsonSome food delivery services are collecting sales tax on sales facilitated for restaurants or other sellers. Learn what risks and complications that may bring.