Crosslin is pleased to present a six-part series on the American Rescue Plan Act of 2021, covering topics such as stimulus payments, child tax credit, employee retention credit, enhanced earned income tax credit, child and dependent care tax credit, and paid medical and family leave credit. This is our final part of the series, but look back over the other hot topics covered throughout the last two weeks. As always, contact the Crosslin tax team with any questions. Today’s summary discusses the paid medical and family leave credit.
The American Rescue Plan Act of 2021 modifies the paid family and medical leave credit, that was first created under the Families First Coronavirus Response Act then extended and expanded under the Consolidated Appropriations Act, 2021. The Families First Coronavirus Response Act provides paid sick leave and expands family and medical leave for COVID-19 related reasons and creates the refundable paid sick leave credit and the paid childcare leave credit for eligible employers. Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave.
Under the American Rescue Plan Act of 2021, eligible employers can continue to claim these payroll tax credits with modifications for qualifying leave they provide between April 1, 2021 and ending on September 30, 2021. Equivalent credits are available to self-employed individuals based on similar circumstances. The American Rescue Plan expands the paid family and medical leave credits as follows:
· increases the limit on applicable wages for which the paid family leave credit can be claimed to $12,000 annually (up from $10,000),
· expands provisions related to the limitation on the number of days taken into account, and
· expands paid time off to include COVID-19 diagnostic testing, receiving the COVID-19 vaccine, and vaccine recovery.
Paid Sick Leave Credit
For an employee who is unable to work because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day for a total of 10 days, up to an aggregate of $5,110.
For an employee who is caring for someone with Coronavirus, or is caring for a child because the child’s school or child care facility is closed, or the child care provider is unavailable due to the Coronavirus, eligible employers may claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day for a total of 10 days, up to an aggregate of $2,000.
The leave for which a credit can be claimed is expanded by the American Rescue Plan to include time off to receive a COVID-19 vaccine, or to recover from a vaccine-related illness or injury. In addition, the American Rescue Plan resets the ten-day per employee limitation on claiming the credit. Originally, employers were limited to claiming the credit for a total of ten days’ leave for an employee, and that ten-day period applied from the original start date through March 31, 2021. Under the American Rescue Plan, effective after March 31, 2021, a new ten-day period is available.
Paid Family Leave Credit
In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus, eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee’s regular pay, capped at $200 per day or $12,000 in total for all calendar quarters. Up to 10 weeks of qualifying leave can be counted towards the childcare leave credit.
Claiming the Credits
Eligible employers can increase the amount of qualified wages for costs to maintain health insurance coverage for the eligible employee during the leave period. Total qualified wages and related credits are reported on the quarterly employment tax return. Eligible employers can fund qualified wages by either reducing their federal employment tax deposits or requesting an advance payment of the credit if there are insufficient federal employment taxes set aside to cover qualified wages.
Impact on Other Credits and Coordination with Relief Programs
There are limitations when considering an eligible employers’ ability to claim the paid family and medical leave credits. The qualified wages for these credits cannot be counted for both these credits and the employee retention credit. Additionally, qualified wages for family leave and medical leave cannot also be used in connection with covered loans under the Small Business Act, certain grants under the Economic Aid to Hard-Hit Small Businesses, Non-Profits and Venues Act, or a restaurant revitalization grant under the American Rescue Plan.
Because of the enhancements and expansion of the paid family leave and medical leave credit, your business may now have an opportunity to take the advantage of this tax benefit. Please contact the Crosslin tax team at (615) 320-5500 to discuss the paid family and medical leave credit and other business tax relief under the American Rescue Plan Act of 2021.