As the COVID-19 pandemic spread last year, Congress enacted the Families First Coronavirus Response Act (“FFCRA”), which required certain employers to provide paid leave benefits to eligible employees, and enabled those employers to claim tax credits on the benefits provided under the law. Although the mandatory leave provisions of the FFCRA expired on December 31, 2020, the recent enactment of the American Rescue Plan Act (“ARPA”) extends the tax credit benefit for employers that offer the leave voluntarily.
Background Legislation Pertaining to FFCRA Leave and Corresponding Tax Credits
The initial FFCRA framework required private employers with less than 500 employees and certain public employers to provide:
- 80 hours of COVID-19 related paid sick leave to employees under the Emergency Paid Sick Leave Act (“EPSLA”); and
- Up to 10 weeks of paid, job-protected leave under the Emergency Family and Medical Leave Expansion Act (“EFMLEA”) for employees who worked for at least 30 days and were unable to work due to the unavailability of a child care provider and the need to care for a child whose school was closed due to COVID-19.
Covered employers under the FFCRA qualified for dollar-for-dollar tax credits on amounts paid to employees taking leaves for qualifying reasons (subject to daily and aggregate payment caps). Under this framework, tax credits also extended to amounts paid or incurred to maintain health insurance coverage. The paid sick leave and tax credit benefit provisions under the FFCRA were in effect between April 1, 2020 and December 31, 2020.
On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act of 2021, pursuant to which the previously mandatory FFCRA leave provisions became optional beginning January 1, 2021. Under this federal COVID-19 Relief Bill, covered employers could voluntarily continue to provide paid leave (as would have been required under the EPSLA and EFMLEA had the FFCRA been extended) and still claim dollar-for-dollar tax credits on wages paid to employees taking such leave. The tax credit was available for leaves between January 1, 2021 and March 31, 2021.
Expanded Voluntary FFCRA Leave and Continuing Tax Credits Under ARPA
In March 2021, President Biden signed into law the ARPA, which extended for a second time tax credits available to private employers with less than 500 U.S. employees that voluntarily provide EPSLA and EFMLEA to their employees.
Notably, while FFCRA leave under the ARPA remains voluntary, as was the case under the Consolidated Appropriations Act of 2021, the ARPA expands the time frame for employers to offer such voluntarily leave and claim corresponding tax credits from April 1, 2021 through September 30, 2021. The ARPA also significantly enhances the leave available under the EPSLA and EFMLEA.
Expanded EPSLA Categories
Under the original FFRCA framework, employees could take EPSLA for the following six reasons:
- Reason 1 – If employees are subject to a federal, state, or local quarantine or isolation order related to COVID-19.
- Reason 2 – If employees have been advised by a health care provider to self-quarantine due to COVID-19 related concerns.
- Reason 3 – If employees are seeking a medical diagnosis on account of experiencing COVID-19 symptoms.
- Reason 4 – If employees are 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 COVID-19 related concerns.
- Reason 5 – If employees are caring for a child because the child’s school or place of care is closed, or childcare provider is unavailable, due to COVID-19 related reasons.
- Reason 6 – If employees are experiencing other conditions similar to COVID-19 (identified by the Secretary of Health and Human Services).
Beginning April 1, 2021, all six EPSLA reasons remain covered under the ARPA, and Reason 3 noted above is expanded to include:
- Employees who are seeking or awaiting results of a COVID-19 test or medical diagnosis, if employees have been exposed to COVID-19 or if their employer(s) requested such test or diagnosis; or
- Employees who are obtaining COVID-19 immunization or recovering from any injury, disability, illness, or condition related to such immunization.
New EPSLA Allotment
The ARPA enables covered employers to receive a tax credit for a new allotment of 10 days of EPSLA, without regard to EPSLA used prior April 1, 2021 (and/or tax credits taken for EPSLA prior to April 1). Therefore, employers that voluntarily allow employees to take EPSLA are required to provide up to 80 hours of leave (and a proportionate amount to non-full time employees) from April 1, 2021 through September 30, 2021—in addition to the 80 hours that employees used in 2020 or between January 2021 and March 2021. However, any EPSLA not used prior to April 1, 2021 does not carry over under the ARPA’s extended provisions. The ARPA leaves unchanged the basis for securing tax credits under the previous EPSLA framework. Thus, tax credits for EPSLA are based on an employee’s regular rate of pay if the leave is because of an employee’s quarantine, isolation or symptoms (see Reasons 1-3 above), including for one of the expanded criteria under Reason 3 (as described above), up to a cap at $511 a day and $5,110 in the aggregate. For any other EPSLA reason (see Reasons 4 – 6 above), the amount of tax credit an employer can receive is limited to two-thirds of an employee’s regular rate of pay and is capped at $200 a day and $2,000 in the aggregate.
Expanded EFMLEA Categories And Increased Total Dollar Cap
Whereas employees could previously take EFMLEA for only one of the six EPSLA categories (see reason 5 above), beginning April 1, 2021, employees may use EFMLEA for all six EPSLA reasons, including the above referenced expanded leave under EPSLA Reason 3.
Further, under the previous FFRCA framework, the first two workweeks of EFMLEA were unpaid, with the remaining 10 weeks paid. Effective April 1, 2021, the entire 12-week period under EFMLEA will be paid, with the total pay cap increasing from $10,000 to $12,000. Consequently, employers are entitled to a tax credit of up to 12 weeks of EFMLEA under the ARPA. The tax credit per employee remains unchanged and is limited to two-thirds of an employee’s regular rate of pay up to a maximum of $200 per day for all of the six expanded reasons listed above. The ARPA does not clearly provide whether the 12 weeks of leave resets after April 1, 2021, however.
Non-Discrimination Requirement
The ARPA makes clear that employers seeking tax credits for voluntary FFCRA leave between April and September 2021 may not discriminate with respect to employees to whom they offer such voluntarily leave. Specifically, employers may not claim a tax credit on any EPSLA or EFMLEA wages if employers favor highly compensated employees (as defined within section 414(q) of the Internal Revenue Code), full-time employees, or employees with tenure and/or seniority.
What should employers do?
- While the ARPA provides for extended tax credits and expanded leave provisions, it leaves other provisions (e.g., covered employers, employee eligibility criteria, etc.) under the original FFCRA framework unchanged. Therefore, employers must pay close attention to the provisions under the updated and original regulations.
- While the expanded FFCRA leave categories remain voluntary, and the ARPA includes an end date for tax credits, employers should decide in the next few weeks whether they wish to offer voluntary leave. If employers offer such leave, they must do so in a consistent matter and for all employees, whether full-time or part-time, hourly or salaried, or tenured/senior and/or newly hired.
If you have questions about the ARPA’s expanded voluntary FFRCA leave and/or extended tax credits, or any other issues relating to employment law, please contact one of our attorneys.