Employers Eligible for Emergency Paid Sick Leave Tax Credits under American Rescue Plan Act of 2021

Through September 30, 2021, employers can offer emergency paid sick leave for COVID-19 related reasons under the American Rescue Plan Act of 2021 (the “Rescue Plan”). The “Rescue Plan” grants tax credits to employers with 500 or fewer employees who voluntarily elect to provide qualified employees with emergency paid sick leave (EPSL) or expanded FMLA (EFMLA) leave for COVID-19 related reasons.

How do paid leave credits work?

The refundable tax credits are claimed against the employer’s share of Medicare tax when completing and filing the Form 941 (quarterly payroll tax filing). The tax credits are refundable, which means that the employer is entitled to payment of the full amount of the credits if it exceeds the employer’s share of the Medicare tax.

How is it calculated?

The tax credit is equal to the sick leave wages paid for COVID-19 related reasons for up to two weeks (80 hours), limited to $511 per day and $5,110 in the aggregate, at 100 percent of the employee’s regular rate of pay. The tax credit for paid family leave wages is paid for up to twelve weeks, limited to $200 per day and $12,000 in the aggregate, at 2/3rds of the employee’s regular rate of pay.

What are an employees’ qualifying reasons?

An employee may qualify for paid sick leave or expanded family medical leave for various COVID-19 related reasons. Some examples include the employee is obtaining the COVID-19 vaccine or recovering from an illness, injury or condition related to the COVID-19 vaccine. The employee 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. The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis or is caring for an individual who is subject to a quarantine or isolation order due to COVID-19.

Is the business required to offer this?

No, employers are not required to offer the emergency paid sick leave under the American Rescue Plan Act of 2021.

Additional resources

https://www.irs.gov/newsroom/employer-tax-credits-for-employee-paid-leave-due-to-covid-19

https://www.natlawreview.com/article/new-paid-sick-and-efmla-leave-provisions-american-rescue-plan-act-2021