Tax

The American Rescue Plan and FFCRA Payroll Tax Credits

09.22.2021

Emptech's founder, Jeff Aleixo

Author

Jeff Aleixo

American Rescue Plan FFCRA Payroll Tax Credits Tax Compliance

On March 18, 2020, the Families First Coronavirus Response Act (FFCRA) was signed into law, as one of the earliest congressional responses to the COVID-19 pandemic. The FFCRA requirements expired on December 31, 2020, but the tax credits continued for employers who chose to voluntarily offer the paid leave through March 31, 2021.

The American Rescue Plan Act (ARPA), signed into law on March 11, 2021, provided that employers could again voluntarily extend Emergency Paid Sick Leave (EPSL) and Emergency Family and Medical Leave Expansion Act (EFMLEA) provisions of the FFCRA to employees and receive those tax credits. Under ARPA, the extension of FFCRA payroll tax credits runs through September 30, 2021.

Overview of FFCRA Payroll Tax Credits

Under the FFCRA, employers with fewer than 500 employees were required to provide emergency paid sick leave and expanded family and medical leave for specific reasons related to COVID-19. In return, employers received FFCRA payroll tax credits to offset the costs. Once the mandated leave provisions expired, eligible employers were permitted to voluntarily choose to extend paid leave for employees through March 31, 2021.

The FFCRA allowed employees to receive paid leave benefits for one of the following circumstances:

  1. An employee is subject to a government-mandated quarantine or isolation order related to COVID-19;
  2. Employee’s health provider orders self-isolation due to concerns related to COVID-19;
  3. An employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
  4. An employee is caring for an individual subject to a quarantine/isolation order by the government or a health care provider;
  5. An employee is caring for a son or daughter whose school or place of care is closed, or whose child care provider is unavailable because of COVID-19; or
  6. An employee is experiencing any other substantially similar condition as specified by the Secretary of Health and Human Services, in consultation with the Secretary of Treasury and the Secretary of Labor.

The FFCRA payroll tax credits are equal to 100 percent of the amount the employer pays in emergency paid sick leave and emergency paid family and medical leave. This includes a portion of the costs of providing group health plan coverage that is allocable to such leave payments.

Make sure to understand your payroll tax obligations, maintain effective tax compliance, and reduce costs by avoiding common mistakes with the help of this detailed guide.

ARPA Changes to FFCRA

In addition to expanding the FFCRA payroll tax credits, the ARPA made several other changes to the FFCRA.

First of all, employers were allowed to receive FFCRA payroll tax credits for employees to take emergency paid sick leave for three additional reasons:

  1. obtaining a COVID-19 immunization; 
  2. recovering from an injury, disability, illness, or condition related to the immunization or 
  3. seeking or awaiting the result of a COVID-19 test or diagnosis when the employee has either been exposed to COVID-19 or the employer has requested the test or diagnosis.

Furthermore, the Act increased the number of weeks that an employee can seek paid family leave under the FFCRA from ten to twelve weeks.  Thus, an employee can get 14 weeks of paid leave available if they qualify, two weeks of sick leave, and twelve weeks of family leave. 

Also, the Act also reset employees’ FFCRA sick leave rights to zero on April 1, 2021.  Therefore, if employees took FFCRA sick leave prior to April 1, 2021, this does not count against their future right to leave right. 

Updates for Vaccine-Related Benefits

On July 29, 2021, the IRS updated its frequently asked questions on the paid leave credits under the ARPA.  According to the updates, covered employers can claim the FFCRA payroll tax credits for providing leave to employees under these circumstances:

  • to accompany a family or household member or certain other individuals to obtain vaccinations relating to COVID-19 or 
  • to care for a family or household member or certain other individuals recovering from the vaccine. 

Complying with the ARPA’s Non-Discrimination Requirements

In order to ensure the ARPA’s extended FFCRA payroll tax credits, employers cannot discriminate in terms of employee eligibility for paid leave. In other words, they will not be eligible to receive FFCRA payroll tax credits if their paid leave program discriminates in favor of certain highly compensated employees, full-time employees, or employees on the basis of employment tenure in continuing to provide voluntary FFCRA leave benefits. Therefore, employers who already provide paid leave to their employees must do so in a non-discriminatory way or they are not eligible to receive the tax credit benefits.

Payroll tax relief programs, such as FFCRA and ARPA, offered an opportunity to employers to save money by reducing their 2020 and 2021 payroll taxes. However, they create additional obligations for employers and expose them to potential additional costs. Therefore, they should continue to monitor developments with respect to any new deadlines and changes in regulations, update their forms and relevant policies, and take proper steps to document leave in order to claim tax credits. To better navigate the changing payroll tax landscape and stay compliant, employers should utilize payroll tax management software. Thus, they can prevent costly mistakes and ensure constant compliance with changing tax regulations.

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