IRS Issues FAQs Regarding Tax Credits for Leave Under ARPA
On June 11, 2021, the IRS issued guidance related to the calculation of the employer tax credit for emergency paid sick leave (EPSL) and expanded FMLA (EFMLA). The guidance comes in the form of 123 frequently asked questions.
The FFCRA originally required employers with fewer than 500 employees to provide EPSL to employees who were unable to work (including telework) due to an order of quarantine, having COVID-19 symptoms and seeking medical care, caring for someone with COVID-19, or caring for a child whose school or day care was closed due to COVID-19. EFMLA was only available for absences related to childcare. The requirement was effective April 1, 2020, and extended through December 31, 2020. Then the Consolidated Appropriations Act changed the provision of EPSL and EFMLA to allow employers the option to provide EPSL and EFMLA from January 1, 2021, through March 31, 2021.
Finally, the ARPA extended the option to use the leave to September 30, 2021, and revised the reasons for leave effective April 1, 2021, to include absences related to receiving the COVID-19 vaccination, illness or injury related to receiving the vaccine, and awaiting COVID-19 test results. The reasons for EFMLA were also expanded to match those of EPSL and the 80 hours of EPSL reset on April 1, 2021.
Generally, an employer is eligible for a tax credit equal to paid leave wages, the cost of health insurance coverage allocable to the leave time, certain collectively bargained contributions, and the employer's share of social security and Medicare taxes associated with the paid wages.
Highlights of the new guidance include:
- How to claim the credit, FAQ #2: Generally, employers claim the tax credit on their quarterly federal employment tax return (Form 941). However, there are two more options available. An employer may reduce their federal employment tax deposits. If there are insufficient federal employment taxes to cover the amount of the credits, an employer may request an advance payment of the credits from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19, for the relevant calendar quarter.
- Collectively bargained contributions, FAQ #11: An employer may receive a tax credit for collectively bargained defined benefit pension plan contributions and collectively bargained apprenticeship program contributions that are properly allocable to qualified leave wages.
- Governmental employers, FAQ #18: Effective April 1, 2021, nonfederal governmental employers are eligible for the tax credit for qualified EPSL and EFMLA. Federal governmental employers remain ineligible for the tax credit.
- US Territories, FAQ #20: Employers in US Territories are eligible for the tax credit assuming that they otherwise qualify as an eligible employer (i.e., fewer than 500 employees).
- Tribal government employers, FAQ #23: Tribal government employers are eligible for the tax credit assuming that they otherwise qualify as an eligible employer.
- Nondiscrimination rules, FAQ #24: An employer who varies eligibility or benefits related to EPSL or EFMLA by favoring full-time employees, highly compensated individuals or those with more tenure would not be eligible for a tax credit.
- Maximum daily limit, FAQ # 34: The maximum daily limit for leave related to the employee's quarantine, symptoms and vaccination is $511 per day as opposed to the $200 per day limit for leave related to the employee caring for someone else. The daily limit applies to the leave wages and any collectively bargained contributions but does not apply to the allocable qualified health plan expenses or the employer's share of social security and Medicare taxes.
- Information requested from employee, FAQ #64: An employer may request the following from an employee for an absence related to EPSL or EFMLA: employee's name, dates of leave, statement describing reason for leave and a statement that the employee is unable to work. If the leave is related to a quarantine, the employer may request the name of the governmental entity or healthcare professional ordering the quarantine. If the leave is related to a school or childcare provider unavailability, the employer may request the name of the child, the name of the school or childcare provider, and a statement that no other suitable person will be providing care during the leave period. For leaves related to receiving a test or vaccination, an employer may request the date of the test or vaccination.
- Timing of wage payment, FAQ #69: Wages paid after September 30, 2021, are still eligible for the credit if the wages paid are related to leave taken between April 1, 2021, and September 30, 2021.
- State and local leave requirements, FAQ #82: If an eligible employer pays wages mandated by a federal, state or local law for leave that otherwise satisfies the requirements of the EPSLA or EFMLA, the employer is entitled to claim tax credits for those wages.
Employers with questions related to the tax credit will find this guidance helpful as it includes many detailed answers and examples.
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