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IRS Issues Updated FAQs on Paid Sick and Family Leave Credits

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As we previously reported, the Consolidated Appropriations Act of 2021, which was signed into law on December 27, 2020, extended the availability of the tax credits for eligible employers for emergency paid sick leave and family leave taken through March 31, 2021. These tax credits were created by the Families First Coronavirus Response Act (FFCRA) and were previously only available through the end of 2020.

It’s important to note that these credits are extended from 2020 and are not new benefits. The credits available apply to periods of leave from April 1, 2020, through March 31, 2021, not solely to new periods of leave taken in 2021. For example, if you already claimed a credit for two weeks (80 hours) of paid sick leave provided to an employee in 2020, you cannot claim a credit for additional paid sick leave provided to the same employee in 2021.

The IRS has now issued updated FAQs about the extended tax credits. Here are key points for your organization to be aware of.

Paid Sick Leave Credit
  • Available to employers with fewer than 500 employees that pay “qualified sick leave wages.”
  • Allows eligible employers to receive a credit for wages or compensation paid to employees who are unable to work (including telework) because they are under a federal, state, or local quarantine order related to COVID-19, have been advised by a health care provider to self-quarantine, or have COVID-19 symptoms and are seeking a medical diagnosis. Eligible employers may claim credit for paid sick leave provided to these employees for up to two weeks (up to 80 hours) at the employee’s regular rate of pay, up to $511 per day or $5,110 in total.
  • Also allows eligible employers to claim the paid sick leave credit for employees who are unable to work because they are caring for an individual with COVID-19 or caring for a son or daughter because the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID–19 precautions. Eligible employers may claim credit for paid sick leave provided to employees who meet these criteria for up to two weeks (up to 80 hours) at two-thirds the employee’s regular rate of pay, up to $200 per day or $2,000 in total.
Paid Family Leave Credit
  • Employers may claim a credit for paid family leave provided to an employee that is equal to two-thirds of the employee’s regular rate of pay, up to $200 per day and $10,000 in total.
  • Up to 10 weeks of qualifying leave can be counted toward the credit.
How to Claim the Credits
  • The IRS said eligible employers can immediately receive a credit in the full amount of the paid sick and family leave, plus related health plan expenses and the employer’s share of Medicare tax on leave provided through March 31, 2021.
  • The refundable credit will be applied against certain employment taxes on wages paid to all employees.
  • Eligible employers may claim the credits on their federal employment tax returns (e.g., Form 941, Employer’s Quarterly Federal Tax Return) or by reducing their federal employment tax deposits, which would provide a faster benefit. Those employers who do not have enough federal employment taxes to cover the amount of the credits may request an advance payment of the credits from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Additional details are available in the IRS’s FAQs about the paid leave. Please contact us online or at info@capincrouse.com with questions about how this may affect your organization.

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