The American Rescue Plan Act (ARPA) extended the FFCRA’s EPSL/EFML tax credits for employers who voluntarily provide paid leaves for certain Covid-related reasons through September 30, 2021. This included some big changes from the previous leave rules, such as a fresh 80 hours of EPSL, paid leaves for seeking a diagnostic test following exposure (even with no symptoms) or upon the employer’s request, paid leaves for getting a Covid vaccine and recovering from its side effects, significantly overhauling the EFML provisions, and allowing governmental entities to start claiming the credits. The EFML changes were pretty substantial, so employers have been anxious for guidance on the new rules.
On Friday, June 11, 2021, the IRS published guidance for employers to properly claim these tax credits from March 1, 2021, through September 30, 2021. As a reminder, these are for employers with fewer than 500 employees as defined by FFCRA counting rules. As of April 1, 2021, this is also available to non-federal governmental employers of any size.
There is nothing terribly surprising in this guidance, as it largely follows prior guidance we’ve had for FFCRA leave credits the last year. Here are just a couple of highlights to note:
- The Overview section reminds eligible employers they may retain from each payroll’s federal tax deposit the amount of the paid leave credits they anticipate claiming for paid leave dates taken through that pay period.
- This includes reducing the deposit by employer and employee Medicare and Social Security taxes and federal income taxes withheld from all employees that pay period, even though the employer will claim the actual credits against only the employer’s share of Medicare taxes for April 1 through September 30.
- If reducing all those payroll tax deposits is still not enough, there is an option for employers to request an advance on IRS Form 7200 as well.
- Ultimately, all credits withheld in advance by reducing payroll tax deposits (and by requesting advances on a 7200) must be officially claimed on the newly revised quarterly Form 941.
- The General Information section clarifies that since the tax credits are fully refundable, there is temporary relief for employers that reduce their payroll tax deposits only for the exact amount of tax credits they have calculated will be owed to them for qualifying paid leave days taken through that pay period. There is also a closing reminder in this section that the statute of limitations on these credits was extended to last five years rather than three.
- The Eligible Employer section helps clarify the counting rules to determine whether an employer has “fewer than 500 employees.” Non-federal governmental employers also now qualify. However, there is a warning in this section that employers that discriminate for or against certain employees with respect to these paid leaves will not be eligible to claim the tax credits.
- The guidance does not say whether an employer could claim EPSL credits solely for paying time off for getting vaccinated and recovering from the vaccine without covering all other EPSL reasons, or whether an employer could offer EPSL without the significantly expanded EFML. The Biden administration had made a communications campaign around the tax credit being available for vaccination purposes without making it clear it’s just one small part of all the EPSL covered leaves. So it may be best to consult with counsel on whether all EPSL and EFML must be voluntarily honored in order to claim the tax credits just for vaccinations, or for just EPSL without offering EFML.
- The section on Allocable Qualified Health Plan Expenses reiterates longstanding guidance on how the employer would calculate credits for covered paid leave days by converting that month’s health plan expenses for insured and self-funded health plans, HRAs, and health FSAs to daily equivalents. HSA contributions are not able to be claimed toward the tax credit.
- There is also a section to help employers calculate the amount of Allocable Collectively Bargained Contributions
- With several layers of tax credits covering the same time frames, there is a section addressing coordination of these FFCRA leave credits with other credits, such as the Employee Retention Credit (ERC), §45S Paid FMLA tax credits, PPP loan forgiveness, and even paid leaves which are primarily designed to satisfy state/local leave laws.
IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information.
This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.