Federal Voluntary Paid Leave Payroll Tax Credit Available Thru March 31, 2021

Beginning April 1, 2020, the Families First Coronavirus Relief Act (FFCRA) required employers to pay sick leave and expanded medical and family leave to employees affected by the coronavirus.

The mandate applied to companies with fewer than 500 employees and included partial exemptions for small companies with fewer than 50 employees.

The FFCRA paid leave mandate ended on December 31, 2020. Employers are no longer required to provide paid sick leave and expanded family and medical leave.

However, Section 286 of the Relief Bill (“Extension of Credits for Paid Sick and Family Leave”) allows employers to take a payroll tax credit for providing FFCRA leave into the first quarter of 2021 for two purposes:

— To recover costs for providing mandatory FFCRA leave in 2020 – If an employee took FFCRA-required leave in 2020, then the employer can take the appropriate tax credits in 2021; and

— To recover costs providing voluntarily FFCRA Leave in Q1 of 2021 – If an employer elects, voluntarily, to provide paid leave to an employee for an FFCRA-qualifying reason in Q1 of 2021, then it can take payroll tax credits for providing such leave.

Employers who choose to voluntarily provide FFCRA leave between January 1, 2021, and March 31, 2021, and seek the tax credits, must keep accurate records and comply with limits on paid leave imposed under the original FFCRA.

Those paid leave limitations (80 hours of emergency paid sick leave and twelve weeks of paid emergency family and medical leave) roll over to the period from January 1, 2021 through March 31, 2021 during which voluntary payments of FFCRA leave qualify for the tax credit.

In other words, there is no new “bank” of FFCRA paid leave available to an employee during the voluntary extension period ending March 31, 2020.

The payroll tax credit only applies to payments made for FFCRA benefits that the employee has left over after December 31, 2020. Employers will not receive tax credits for benefits provided in excess of statutory limits.

The amount of employee FFCRA leave eligibility subject to the tax credit also depends on which 12-month period an employer uses for the purpose of measuring availability of leave (calendar year, fiscal year, a 12-month period measured forward from use of FFCRA leave, or a rolling 12-month period measured backward from use of FFCRA leave).

EMA will provide additional information once the IRS publishes guidance on the tax credit. In the meantime, employers who choose to provide voluntary FFCRA payments should consult their accountant or tax preparation professional.

EMA Staff Contact: Mark S. Morgan Regulatory Counsel mmorgan@emamerica.org or 703-281-6600.

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