Employers that provide paid leave to employees who need time off to receive the COVID-19 vaccine may be eligible for federal tax credits under the American Rescue Plan Act (ARPA). Here's an overview of the tax credits.

Background:

FFCRA:

In March 2020, the federal Families First Coronavirus Response Act (FFCRA) was enacted. The FFCRA required employers with fewer than 500 employees to provide paid sick and family leave to employees affected by COVID-19 and provided affected employers with a corresponding employment tax credit. The leave requirements took effect April 1, 2020 and expired on December 31, 2020. The tax credits were also set to expire on December 31, 2020 but were extended until March 31, 2021 for employers that provided FFCRA leave voluntarily.

Emergency paid sick leave (EPSL):

As enacted, the FFCRA required covered employers to provide up to 80 hours of EPSL to employees when they are unable to work (or telework) due to quarantine or isolation orders, caring for an individual who is subject to such orders, experiencing symptoms of COVID-19, or caring for their child whose school or place of care is closed due to COVID-19 precautions.

Public health emergency leave (PHEL/Expanded FMLA):

Under the FFCRA, eligible employees were also entitled to up to 12 weeks of job-protected leave to care for their son or daughter under 18 years of age if their school or place of care has been closed, or their childcare provider is unavailable, due to a public health emergency.

ARPA:

In March 2021, Congress passed the ARPA, which, among other things, extended the tax credits for FFCRA leave through September 30, 2021 for employers that provide the leave voluntarily. The law also added new reasons why employees may take paid leave for which employers are entitled to the tax credit. These reasons include:

  • Leave for time awaiting the results of a COVID-19 test; and
  • Leave to obtain immunization for COVID-19, or to recover from any adverse health impacts arising from the immunization.

These new reasons for the tax credit apply only from April 1, 2021 through September 30, 2021.

The ARPA also provided that from April 1, 2021 through September 30, 2021, the tax credits apply when eligible employees are provided PHEL/Expanded FMLA for the same reasons as allowed under the EPSL provisions, including the vaccination-related reasons. Notably, at least under federal law, employers can decide to provide both types, one type, or neither types of the leave in 2021. For instance, you may decide that you will provide EPSL and seek the tax credits for it but decide against providing PHEL/expanded FMLA in 2021. However, when employers do decide to provide one or both types of leave, they must comply with the FFCRA/APRA to be eligible for the tax credits. For example, if you choose to offer EPSL from April 1 through September 30, you must provide at least 80 hours of such leave for all covered reasons.

State Laws:

Even though federal law doesn't require employers to provide paid leave for COVID-19 vaccination, some states and local jurisdictions have laws that do. For example, in March 2021, the state of New York enacted a law that entitles employees to up to four hours of paid leave per injection. States and local jurisdictions may also have existing paid sick leave laws that would cover time off to obtain the COVID-19 vaccination. Check your applicable law to ensure compliance.

Tax Credits:

Employers with fewer than 500 employees are entitled to tax credits for wages paid for FFCRA leave, including leave taken from April 1, 2021 through September 30, 2021 to receive COVID–19 vaccinations or to recover from vaccinations. The amount of these tax credits is increased by allocable health plan expenses as well as the employer's share of Social Security and Medicare taxes paid on the wages (up to the caps outlined below). The tax credits are applied against the employer's share of the Medicare tax and are refundable and advanceable via IRS Form 7200.

Maximum Credit for EPSL:

The credits generally cover up to 10 days of EPSL, according to the following formula:

COVID-19 Vaccination Leave for Employees, Tax Credits for Employers IMAGE 1

Note: For the purposes of the tax credit, the original FFCRA 10-day/80-hour limitation for EPSL applied through March 31, 2021. The ARPA reset this limit for EPSL taken between April 1, 2021 and September 30, 2021.

Maximum Credit for PHEL/Expanded FMLA:

The amount of PHEL/expanded FMLA wages eligible for the tax credit is as follows:

COVID-19 Vaccination Leave for Employees, Tax Credits for Employers IMAGE 2

To receive tax credits for providing EPSL and/or PHEL/Expanded FMLA, make sure you follow the requirements of the FFCRA and ARPA carefully.

This article was originally published as an "ADP HR Tip of the Week" which is a communication created for ADP's small business clients.

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