Here we go again: yet another new relief bill sends employers heads spinning. On March 11, 2021, the American Rescue Plan Act of 2021 (ARPA) was signed into law. Among the many changes, ARPA extends the timeframe for employers to receive tax credits for voluntarily providing paid sick leave for COVID-19 and expands on other Families First Coronavirus Response Act (FFCRA) leave-related provisions.
FFCRA, CAA, and now ARPA
The Families First Coronavirus Response Act (FFCRA) provided organizations with under 500 employees refundable payroll tax credits for the cost of providing paid sick and family leave wages to their employees for leave related to COVID-19 between April 1, 2020 and December 31, 2020. Employees could receive up to 80 hours of paid sick leave for their own health needs or to care for others and up to an additional ten weeks of paid family leave to care for a child whose school or child-care provider was closed due to COVID-19 precautions. The mandates expired on December 31, 2020 leaving employers with no obligation to provide paid leave in 2021.
The Consolidated Appropriations Act of 2021 (CAA) was passed by Congress on December 22, 2020 allowing employers to voluntarily allow their employees to use any emergency paid sick leave (EPSL) or emergency family and medical leave (EFML) they had left. In return for doing so, employers would receive a tax credit through March 31, 2021.
Now, employers want to know how APRA has changed the state of FFCRA leave and administration. Here is what we know so far regarding the changes.
Six-Month Tax Credit Extension
- Previously: Private employers could receive tax credits for providing employees with EPSL or EFML only through March 31, 2021.
- What Changed: Tax credits are now available to employers who voluntarily provide FFCRA leave until September 30, 2021.
State and Local Government Employer Eligibility for Tax Credits
- Previously: There was specific language excluding all government employers from claiming the refundable tax credit for paid EPSL and EFML.
- What changed: ARPA changes the source of the tax credit beginning April 1, 2021 by creating a new section of the Internal Revenue Code that permits the credit to be applied against the “hospital insurance tax.” This section does not explicitly exclude state and local government employers from claiming the credit; the exclusion is limited to certain federal employers. This suggests that the tax credit is now available to state and local government employers, but we must await clarification from the IRS since this would be a major change from the previous FFCRA tax credit rules.
Optional New EPSL Bank
- Previously: FFCRA provided 10 days of EPSL that could be used through December 31, 2020. CAA extended that period to March 31, 2021. Employers were able to claim a payroll tax credit to offset up to ten days of wages paid as EPSL.
- What changed: Employers may (but are not required to) grant employees a new ten-day EPSL bank beginning April 1, 2021, even if employees already used up their ten days of emergency sick leave before April 1. If an employer voluntarily provides an additional ten days of EPSL between April 1, 2021 and September 30, 2021, they are eligible for a tax credit. Note: Any EPSL employees did not use before March 31, 2021 does not carry forward for use during the new period; it is gone and cannot be used.
Qualifying Uses for Tax Credits Include COVID-19 Vaccinations and Tests
For employers to claim a tax credit, employees must take leave for a qualifying reason under the FFCRA for either EPSL or EFML.
- Previously: Employees could take EPSL for six qualifying reasons under FFCRA:
- Employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19.
- Employee has been advised by a health care provider to self-quarantine due to COVID-19 concerns.
- Employee is seeking a medical diagnosis if experiencing coronavirus symptoms.
- Employee acts as a caregiver for someone 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.
- Employee acts as a caregiver for a child if a school or daycare closed or if the childcare provider is not available, due to coronavirus precautions.
- Employee is experiencing other conditions similar to COVID-19, as identified by the secretary of health and human services.
- Previously: Employees could take EFML only if the employees were unable to work/telework to act as a caregiver for a child whose school or place of care was closed/unavailable due to the public health emergency.
- What changed? Employees are now able to take EPSL and EFML for any of the above reasons. ARPA also added and expanded reasons for an employee to use to take either type of FFCRA leave as of April 1, 2021.
- Employee seeks a vaccine appointment
- Employee needs to recover from adverse reactions to the COVID-19 vaccine
- Employee is seeking or awaiting the results of a diagnostic test or medical diagnosis for COVID-19, or their employer has requested the test or diagnosis.
Maximum EFML Pay Increases
- Previously: FFCRA provided that the first two weeks of EFML were unpaid, with the remaining (up to) ten weeks paid at two-thirds of the employee’s regular rate, up to $200 per day and a total maximum of $10,000.
- What changed? The entire twelve weeks of EFML is now paid. The two-week unpaid provision was deleted. As a result, the amount of paid leave wages an employer may claim a tax credit for increased from $10,000 to $12,000.
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Is anything else new?
A nondiscrimination provision was added for employers providing paid FFCRA leave. If an employer chooses to offer the paid leave (either EPSL and/or EFML), it must be offered to all employees. An employer cannot claim tax credits if they discriminate in favor of highly compensated employees, full-time employees or based on employment tenure in providing EPSL or EFML.
What else should employers know?
- Providing FFCRA leave benefits is optional, and employers may choose to provide coverage under the EPSL, the EFML or both.
- States and local jurisdictions may have enacted their own COVID-19 leave mandates that continue to apply.
- Previous questions related to rules and thresholds appear to remain unchanged, including which employers are covered, employee eligibility rules, etc.
- There is not a specific date that employers are required to begin providing benefits, if they choose to do so—Any time after April 1 and before September 30 is acceptable.
What should employers do now?
- Decide whether to offer paid sick and/or family leave benefits under FFCRA until September 30, 2021.
- Remember that any paid FFCRA leave benefits they currently provide will expire March 31.
- Update paid leave policies related to paid sick and family leave if deciding to continue allowing paid leave.
- Consult your attorney if you have questions about FFCRA leave or how paid leave tax credits work.
Stay tuned to the International Foundation for the latest updates! We are expecting additional guidance and regulations from the Department of Labor and Internal Revenue Service implementing these new provisions.
Learn more about how ARPA impacts plan sponsors:
- American Rescue Plan Act of 2021 and COBRA Subsidies
- How the American Rescue Plan Act of 2021 Impacts Dependent Care Assistance Programs
- What the American Rescue Plan Act Means for Financially Troubled Multiemployer Pension Plans
Amanda Wilke, CEBS
Information/Research Specialist at the International Foundation
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