How does the FFCRA tax credit work?
Unlike other tax credits or deductions, there is no need to wait to file your annual tax return, or even until the end of the calendar quarter, to claim FFCRA credits for which your small business is eligible.
Covered employers can claim credits once qualified wages have been paid. They can do so by retaining an amount of federal income taxes and Social Security/Medicare taxes equal to the credit amount claimed, rather than depositing the full amount of payroll taxes with the IRS. If the amount of payroll taxes is not enough to cover the full amount of the credit claimed, employers can file Form 7200 with the IRS requesting payment for the additional credit amount.
What employers qualify for the FFCRA tax credit?
Employers of any size may offer their employees paid time off for COVID-related leave. However, only private employers (including tax-exempt businesses) in the U.S. or U.S. territories with fewer than 500 employees, including household employers and tribal governments, are considered covered employers. In addition, covered employers must have paid qualified sick leave wages or qualified family leave wages under FFCRA or ARPA to qualify.
How are FFCRA tax credits calculated?
FFCRA and ARPA tax credits are not unlimited. Paid sick leave credits are capped at 100% of qualifying wages provided between April 1, 2021 and September 30, 2021 based on the employee's regular pay, up to $511 per day. "Qualifying wages" include allocable qualified health plan expenses and the employee's share of Medicare tax.
Covered employers who voluntarily offered their workers paid leave through March 31, 2021 are entitled to claim tax credits under FFCRA. In addition, ARPA allows covered employers to receive tax credits for employees' paid emergency sick leave for a covered reason for up to an additional 10 days of time off per employee between April 1, 2021 and September 30, 2021, even if some or all of the credits claimed were for employees who previously took FFCRA paid leave for which the employer has already claimed tax credit.
Employers can also receive tax credits for up to 12 weeks of additional paid family leave, up to $12,000 per employee (limited to two-thirds of the employee's regular pay rate or a cap of $200 per day).
What are the qualifying reasons an employee may take COVID-related paid leave under ARPA?
Under ARPA, employees whose employers voluntarily offer coronavirus-related paid leave may be eligible for paid time off if the employee is:
- Subject to a quarantine or self-isolation order.
- Advised by a medical provider to self-quarantine.
- Symptomatic for COVID-19 and is seeking medical help.
- Caring for someone else who is quarantining or self-isolating.
- Caring for a child whose school or daycare is closed or whose care provider is otherwise unavailable because of COVID-19.
The preceding reasons were also part of FFCRA. ARPA added some additional qualifying reasons employees may take coronavirus-related paid leave, including when the employee is:
- Obtaining a COVID-19 vaccine.
- Recovering from side effects related to the vaccine.
- Seeking or awaiting results from a COVID-19 test at the employer's request or because the employee was potentially exposed to the virus.
Don't leave tax credits on the table
If you are eligible for tax credits for paid leave provided under FFCRA or have decided to voluntarily extend paid time off under ARPA, be sure to claim the credits your business is entitled to receive. The provisions contained in the various coronavirus-related aid available to small business owners can be complex and nuanced, even for the most savvy business owners. Don't be afraid to reach out to a Rocket Lawyer network attorney for affordable legal advice and assistance when you need it!
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.