Update: 2021 Emergency Sick and Paid Leave Programs
As federal COVID-19 relief programs continue to diminish, New Jersey and Pennsylvania-area businesses are searching for other funding opportunities. Several companies have not yet fully recovered from the pandemic’s devastating fallout, while others are concerned about the potential impact of COVID variants. There has been a reported 30% increase in COVID hospitalizations in New Jersey, while Pennsylvania reported triple-digit growth in the number of new cases.
Given the current landscape, it is not surprising many business owners are concerned. However, the good news is that businesses offering paid sick or family leave time related to COVID-19 can receive a refundable tax credit through September 30, 2021. Originally introduced as part of the Families First Coronavirus Response Act (FFCRA), several changes were made in The American Rescue Plan (ARP) Act of 2021, which offers additional benefits for employees and savings for employers, of which we have summarized the key changes below.
2021 FFCRA Changes
There were updates made which apply to both paid sick and family leave. The most important is that unlike 2020, employers are no longer required to offer these emergency benefits. In other words, participation is optional. Employees that used the 2020 maximum 10-day (80 hours) benefit now have an additional 10-day (80 hours) benefit in 2021. Finally, the program expires on September 30, 2021, which means qualifying sick or family leave time will not be eligible for a tax credit after expiration.
Emergency Paid Sick Leave Updates
The ARP expanded the qualifying reasons under which emergency paid sick leave can be taken. For example, qualifying sick time can now be taken when an employee is unable to work due to:
- Receiving a COVID-19 vaccination
- Recovering from vaccination-related illnesses
- Awaiting results from a COVID-19 test
- Subject to a quarantine order
- Experiencing COVID-19 symptoms
- Caring for an individual subject to a quarantine order, or
- Caring for a child whose primary place of care has been closed
Finally, the tax credit for paid sick leave equals the wages paid for qualifying COVID-19 reasons for up to 80 hours, limited to $511 per day ($5,110 in total), at 100% of the employee’s regular pay.
Emergency Family Medical Leave Updates
A key change ushered in by the ARP is the expansion of qualifying events covered under emergency family leave. Under previous regulations, qualifying emergency family leave could be taken if an employee had to care for a child whose school or another place of care had been closed for a COVID-related reason. The ARP expanded this to include any of the qualifying events available for emergency paid sick leave.
There was also clarification about non-discrimination in program access to certain classes of employees (part-time vs. full-time). In other words, if an employer offers emergency paid leave, it must be provided to all employees, including newly hired staff and part-time team members. This was an expected change since program participation is voluntary.
Finally, the tax credit for paid family leave wages equals the amount of qualifying wages paid up to 12 weeks, limited to $200 per day ($12,000 in total) at 66% of regular pay.
Claiming the Credit
Since the tax credit is claimed against federal payroll taxes, it is unnecessary to wait until year-end to receive the benefit. The credit is claimed against the employer’s share of Social Security and Medicare taxes paid on leave wages for each calendar quarter. Therefore, once the eligible amount is determined for a specific quarter, an employer may keep the appropriate portion of federal payroll taxes, which would have otherwise been due. This information is documented and then submitted to the IRS on Form 941. If you have employees who received this benefit in previous quarters and did not claim the credit on your initially filed 941, you can file an amended form called a 941-X to take advantage of the credit.
The extension of the FFCRA leave benefits creates a significant savings opportunity for New Jersey and Pennsylvania-area businesses. However, since the program expires at the end of the month, it is essential to consult with a qualified advisor to determine if your company can claim savings.
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©2021 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date. The content is provided for informational purposes only and does not constitute accounting, tax, or financial advice. Please consult your advisor concerning your specific situation.