Employers will continue to see tax benefits for providing paid sick leave and family leave for the second and third quarters of 2021. The Families First Coronavirus Response Act (FFCRA) created an employer tax credit to reimburse employees’ sick and family leave for reasons related to COVID-19. This credit has been extended through the end of September 2021 by the Consolidated Appropriations Act, but the extension only applies to the second and third quarters (April through September) of 2021.
Paid Sick Leave. What do taxpayers need to know about this credit? First, the extension resets the “10 days per employee” limit starting on April 1st.
Second, as before, the FFCRA adds to the qualifying reasons an employee can take paid sick leave. For example, an employee can get paid sick leave:
- In order to obtain immunization for COVID-19
- If they are ill due to the COVID-19 immunization
- If they are seeking or awaiting the result of a diagnostic test or a medical diagnosis of COVID-19 (because they have been exposed to COVID-19 or their employer requested that they get tested)
Taxpayers should note that the 2021 extension applies to the credit but not the mandate. So employers are able to provide paid sick leave and claim these credits, but this is not required.
Paid Family Leave. The paid family leave extension generally uses the same rules as sick leave with some modifications. For the second and third quarter of 2021:
- The maximum credit increases from $10,000 to $12,000 in covered wages
- The number of days of paid leave increases from 50 to 60 days
- The new family credit allows an employee to cite any reason that qualifies for paid sick leave
These adjustments mean that more people may be able to use the paid family leave credit than were able to under the prior law.
Another change is that the sick and family leave wages are now subject to social security and Medicare tax, which was not the case previously. However, the government will provide an additional credit to offset the employer share of these taxes. The employer does not have to pay anything out of pocket. Again, this change is only applicable to the second and third quarters of 2021—none of this is retroactive.
Self-Employed Benefits. Congress also stipulated that self-employed taxpayers receive the same credits. These credits also extend to the end of September 2021 and are calculated in the same manner. The taxpayers claiming these credits had to be unable to work and entitled to paid sick or family leave based on one of the applicable reasons, including any of the enhanced reasons specific to COVID-19.
Here’s an example of a qualifying situation: Joan is self-employed and becomes eligible to get vaccinated. When she receives her second shot in April, she experiences strong side effects and can’t work for two days. Joan can receive paid sick leave and claim the credit when she files her 1040 form.
Employers and self-employed taxpayers need to be aware of who is eligible for paid sick and family leave under FFCRA rules and which related credits they can claim for the 2021 tax year.
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