Extension of federal paid leave tax credits

Time off for vaccines

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Congress passed the American Rescue Plan in March of 2021 to extend the paid leave tax credits available to employers with less than 500 employees through September 30, 2021. While employers are no longer required by federal law to provide the leave, if this leave is voluntarily provided (or, provided pursuant to a state or local mandate), employers can continue to obtain tax credits for the maximum amount allowed under federal law for leave taken through September 30, 2021. Please note that the amount paid to the employee may not exactly match the tax credit available if the state or local order requires paying out such leave at a different amount than the federal maximum tax credit.

Additionally, the plan expanded the circumstances under which the paid leave tax credits would apply to include vaccination-related time off in an effort to vaccinate as many Americans as possible.

The following are new qualifying reasons for the paid leave tax credits:

  • Time off for obtaining a COVID-19 vaccine;
  • Time off to recover from any injury, disability, illness or condition related to such vaccination (i.e., experiencing side effects); and
  • Time off to seek or await results of a diagnostic test or medical diagnosis for COVID-19 (or if the employer requests such a test or diagnosis).

The law also re-set the 10-day limit for the tax credit under the FFCRA starting April 1, 2021. So, if an employee previously exhausted COVID-related leave and tax credits in 2020 or even early 2021, the availability of tax credits for such leave replenished on April 1. Again, federal law does not require the leave be provided after April 1, 2021, but if such leave is voluntarily provided by employers, or provided under some state, local or other requirement, employers can seek tax credits even for an employee who previously used all available FFCRA leave.

The law adds non-discrimination rules to disallow tax credits if an employer discriminates against highly compensated employees, full-time employees, or employees on the basis of tenure with the employer in providing the paid leave. Accordingly, employers should offer the paid leave in a uniform manner, without distinguishing between categories of employees.

Tax credits can generally be claimed by on Form 941, Employer's Quarterly Federal Tax Return PDF, used by most employers to report income tax, as well as Social Security and Medicare taxes withheld from employee wages. If employers do not have enough federal employment taxes set aside, they can request an advance of the credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.