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The Families First Coronavirus Response Act (“FFCRA”), passed by Congress on March 18, 2020, required most employers to grant employees paid vacation in certain situations related to the COVID-19 pandemic (the “FFCRA Mandate”) grant. To offset the cost of this vacation, the FFCRA allowed employers to receive tax credits for wages and other expenses paid as part of this required vacation. The FFCRA mandate expired on December 31, 2020.
Congress extended the paid vacation and tax credit rules from January 1, 2021 to March 31, 2021 under the Consolidated Appropriations Act of 2021 (“CAA 2021”), which was passed on December 21, 2020. The CAA 2021 extension in general All rules of the FFCRA were retained, with the exception that the extension did not contain the FFCRA mandate. As a result, employers could decide whether or not to continue to give workers this paid leave, with the employers who granted the leave being able to claim tax credits for that paid leave. The CAA 2021 extension expired on March 31, 2021.
Recognizing that the U.S. is still in the midst of the COVID-19 pandemic, the U.S. Rescue Plan for 2021 (the “Rescue Plan”) passed by Congress on March 11, 2021 renewed the rules for paid vacation from Jan. April 2021 to September 30, 2021. As with the CAA 2021 expansion, there is no FFCRA mandate. However, the rescue plan added some additional situations where an employer can grant paid vacation and introduced a new non-discrimination test employers must pass in order to claim the tax credits.
Emergency paid leave
Employers can grant employees who qualify under one of the following criteria up to 80 hours (10 days) of paid emergency leave (“EPSL”):
- The employee is subject to a government quarantine or isolation order.
- The employee was ordered by a health care provider to quarantine himself.
- The employee has symptoms of COVID-19 and is seeking a medical diagnosis.
- The employee looks after someone who is subject to a government quarantine or isolation order, or who has been instructed to self-quarantine by a healthcare provider.
- The employee will take care of their child if the child’s school or care facility has been closed, or if that child’s carer is unavailable due to COVID-19 precautions.
- The employee is seeking or waiting for the results of a diagnostic test or medical diagnosis of COVID-19 and that employee has been exposed to COVID-19 or the employer has requested such a test or diagnosis.
- The employee receives a vaccination related to COVID-19; or
- The employee is recovering from any injury, disability, illness, or condition related to such vaccination.
Insight – The rescue plan has added the last three criteria listed above.
The employer pays 100% of the employee’s wages up to $ 511 per day if the employee is taking EPSL for their own needs. If the employee takes EPSL to care for someone else, the employer pays 2/3 of the employee’s daily wage instead, up to $ 200 per day. Note that EPSL wages are considered “wages” for all purposes, including tax withholding and benefits (such as pension contributions).
Tip – The rescue plan has reset the period of 10 days so that only EPSLs that start on or after April 1, 2021 are counted towards this 10-day entitlement.
Paid family leave and emergency medical leave
Similarly, employers may grant employees who qualify under any of the above EPSL criteria up to 12 weeks of paid family and medical leave (“EPFL”).
The employer pays 2/3 of the employee’s daily wage, up to $ 200 per day, subject to a maximum of $ 12,000. Note that EPFL wages are considered “wages” for all purposes, including tax withholding and benefits (such as pension contributions).
Tip – The bailout plan removed the requirement that EPFL not have to pay for the first 10 days and increased the maximum cap accordingly from $ 10,000 to $ 12,000
Eligible employers
Employers eligible for EPSL and EPFL tax credits include employers with fewer than 500 employees, the self-employed, tax-exempt organizations, and state and local employers (added as part of the rescue plan). Employers with more than 500 employees or employers of the federal government are not eligible.
Insight – So far, small employers with fewer than 50 employers could apply for an exemption from the provision of EPSL and EPFL in certain situations under the FFCRA mandate. With the FFCRA mandate no longer in place, this is no longer a problem and small employers, like any other eligible employer, can decide whether or not to offer EPSL and EPFL.
Tax credits
Eligible employers who make EPSL and EPFL available to eligible employees can receive tax credits equal to 100% of the EPSL and EPFL wages paid. In addition, these tax credits are increased by the amounts attributable to those wages, which are attributable to: (i) Qualifying Health Plan expenses paid or incurred by the employer in providing or maintaining a group health plan; (ii) the employer’s share of Social Security and Medicare taxes paid on those wages; and (iii) amounts paid by the employer to: (A) a multi-employer defined benefit plan; and (B) a collectively negotiated apprenticeship program.
Tip – As noted above, the rescue plan has reset the EPSL deadline so that eligible employers can claim EPSL tax credits completed on or after April 1, 2021 through September 30, 2021, regardless of EPSL that qualified by Employees completed before April 1, 2021 were completed April 1, 2021.
Employers request the tax credits on IRS Form 941 – Employer’s Quarterly Federal Tax Return. If the EPSL and EPFL tax credits exceed the employment taxes applicable for the quarter, these tax credits will be treated as overpayments and reimbursed.
Employers can also expect to take advantage of the tax credits and retain the otherwise deposited federal labor taxes up to the amount of the tax credit. These include federal income taxes withheld by employees, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes for all employees.
Finally, employers who don’t have enough federal labor taxes to offset these tax credits can file IRS Form 7200 – Prepayment of Employer Loan Due to COVID-19 to solicit funds directly from the federal government.
Non-discrimination rules
The rescue plan added new anti-discrimination rules to the requirements for EPSL and EPFL tax credits. Tax credits are not available if an employer discriminates in favor of: (i) highly paid workers; (ii) full-time employees; or (iii) employees based on their tenure.
Tip – For 2021, a highly paid worker is typically one who earned more than $ 130,000 in compensation in 2020 or who owns 5% of the employer.
Action element:
Employers should consult with their accounting, tax, and legal advisors to determine whether offering EPSL and EPFL is appropriate for their situation and, if so, how to use the tax credits offered in the rescue plan. In addition, employers should continue to seek additional guidance from the federal government, with additional rules and regulations expected from the Department of Labor and the Internal Revenue Service.
Our attorneys continue to monitor the impact of coronavirus on the markets (including employee benefits and compensation matters) and we have developed a dedicated COVID-19 resource library to provide insights into regulations and / or legislative changes. Please contact your Pryor Cashman attorney for specific advice or advice.
The content of this article is intended to provide general guidance on the subject. A professional should be obtained about your particular circumstances.
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