By: Damien Strohmier, CPA, CCIFP
Note: On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021, which includes the following provisions related to the employer tax credits discussed in this article:
- Extension of the period for which the credit for providing paid sick and family leave may be taken from March 31, 2021, to September 30, 2021.
- Increase in the limit on applicable wages subject to the paid family leave credit from $10,000 to $12,000, effective April 1, 2021.
- Expansion of the qualifying reasons an employee must miss work to include time off to receive a COVID-19 vaccine, or to recover from vaccine-related illness or injury.
- Resetting of the 10-day per employee limitation. Effective after March 31, 2021, a new 10-day limitation period is available for each employee.
Has your company paid COVID-related sick leave to employees? If so, there is a refundable credit that has been overlooked by many employers. This article will cover if the paid sick leave qualifies for the refundable credit and how a company can go back and benefit from this provision.
The Families First Coronavirus Response Act (FFCRA) provides small and midsize employers refundable tax credits that reimburse, dollar-for-dollar, the cost of providing paid sick and family leave wages to employees for COVID-related leave. Paid leave eligible for the credit can be provided through two separate provisions:
- Emergency Paid Sick Leave Act (EPSLA)
- Emergency Family and Medical Leave Expansion ACT (Expanded FMLA).
Below, we will focus on EPSLA because these benefits are the most common form of wages that are being paid by small and mid-size business and not being identified and tracked to receive the credit.
Emergency Paid Sick Leave Act (EPSLA)
EPSLA provides up to 80 hours of paid sick time when employees are unable to work (including telework) for certain reasons related to COVID-19. The benefits and qualifying reasons for the benefits are below:
Paid sick leave for up to 80 hours at the employee’s regular rate of pay, up to $511 per day and $5,110 in total
- the employee is under a Federal, State, or local quarantine or isolation order related to COVID-19;
- the employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
- the employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
Paid sick leave for up to 80 hours at 2/3 the employee’s regular rate of pay, up to $200 per day and $2,000 in total
- the employee is caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19, or has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
- the employee is caring for the child of such employee if the school or place of care of the child has been closed, or the childcare provider of such child is unavailable, due to COVID–19 precautions;
- the employee is experiencing any other substantially similar condition specified by the U.S. Department of Health and Human Services.
How do you know if your company received these credits?
The credits are received through a reduction of the social security tax portion of FICA that your business pays related to payroll. The credits will reduce the total FICA owed on your quarterly 941 that is filed. Credit for qualified sick leave wages are shown on lines 5a(i), 11b and 13c of the updated 941.
Can you go back and obtain the credits if they were missed?
Yes. Whether you outsource payroll or perform it in-house, the process should include properly classifying sick leave wages when they were actually paid and then amending the respective quarterly 941 for the period they sick leave wages were paid. We also recommend that you retain supporting documentation covering the qualified reason sick leave was paid for each employee.
What else do I need to know?
COVID-19 wages for which the refundable credits can be claimed cannot be wages that were used in the Paycheck Protection Program loan forgiveness calculation. This does not mean that just because you submitted a forgiveness application that you miss out on this benefit, but you do want to work with your advisor to make sure there are no implications of seeking these refundable credits.
EPSLA has been expanded to cover sick leave wages paid through March 31, 2021 (originally available only through December 31, 2020). Despite the extension, there are no changes to employee maximums.
If your company would like assistance in amending its 941s for these credits or to consult regarding the qualifying reasons and applicability to your circumstance, or to understand the provisions of the Expanded FMLA and how that would apply to your company, please do not hesitate to reach out to your local Blue & Co. advisor.