Thought Leadership

Paid Leave Tax Credits under the American Rescue Plan Act

March 12, 2021 Advisory

On Thursday, President Biden signed the American Rescue Plan Act of 2021 (ARPA) into law. Amongst the law’s many changes, the ARPA will extend employer tax credit opportunities for certain forms of COVID-19-related paid leave. Although the federal law requirement for employers with fewer than 500 employees to provide paid leave under the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical Leave Act (EFMLA) expired on Dec. 31, 2020, tax credits covering the cost of EPSLA and EFMLA for those employers that have continued to provide such benefits were extended through March 31, 2021. ARPA will extend those tax credits from April 1, 2021, through Sept. 30, 2021, and expand the reasons for which eligible employees can take tax credit-funded EPSLA and EFMLA leaves.

Details of Extended Government-Funded EPSLA Benefits

  • Tax credits will be available to cover the cost of up to 10 days per calendar year of paid EPSLA leave. These credits are subject to a daily cap of $200 or $511 per day, based on applicable EPSLA eligibility rules. Certain health plan expenses associated with the provision of EPSLA leave do not count toward the daily cap.
  • The daily cap for EPSLA tax credits also applies after the inclusion of certain “collectively bargained costs” associated with the paid leave, so employers with union-represented workforces should analyze whether amounts beyond the $200 and $511 daily caps can be claimed under the expanded tax credits.
  • An employee’s bank of available EPSLA leave will be reset to a full 10 days on April 1, 2021.
  • Reasons for EPSLA leave are expanded to include absences resulting from:
    • the employee seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19 if such employee has been exposed to COVID-19, or their employer has requested such test or diagnosis;
    • the employee obtaining a COVID-19 vaccination; or
    • the employee’s need to recover from any injury, disability, illness or condition related to COVID-19 vaccination.
  • EPSLA tax credits are available only to an employer that does not discriminate in favor of highly compensated employees, full-time employees or employees on the basis of employment tenure.

Details of Extended Government-Funded EFMLA Benefits

  • Starting on April 1, 2021, tax credits will cover up to 12 weeks of “qualified family leave wages” during a calendar year (capped for each eligible employee at $200 per day and $12,000 in total). As with the extended EPSLA tax credits, certain health plan expenses associated with the provision of EFMLA leave do not count toward the daily cap.
  • Additionally, caps applying to EFMLA tax credits are applied after the inclusion of certain “collectively bargained costs” associated with the paid leave, so employers with union-represented workforces should analyze whether amounts beyond the default caps can be claimed under the expanded tax credits.
  • An employee’s bank of available EFMLA leave will be reset to a full 12 weeks on April 1, 2021, and the 10-day waiting period that had applied to EFMLA leave under the original Families First Coronavirus Response Act will be eliminated.
  • The term “qualified family leave wages” includes wages paid by an employer which would have been required to be paid under the original EFMLA, as well as any of the following additional reasons:
    • leave that would cause an employee to be eligible for EPSLA leave (as described in section 5102(a) of the Families First Coronavirus Response Act), such as:
      • becoming subject to a quarantine or isolation order related to COVID-19;
      • being advised by a health care provider to quarantine due to COVID-19 concerns;
      • experiencing COVID-19 symptoms and seeking a medical diagnosis;
      • caring for someone subject to a COVID-19 quarantine order or advised to quarantine due to COVID-19 concerns;
      • caring for a son/daughter whose school/care provider is closed or unavailable, due to COVID-19 precautions; or
      • experiencing any other substantially similar condition specified by the Secretary of HHS;
    • leave required for an employee seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19 if such employee has been exposed to COVID-19 or the employee’s employer has requested such test or diagnosis;
    • leave required for the employee to obtain COVID-19 vaccination; or
    • leave required for the employee to recover from any injury, disability, illness or condition related to COVID-19 vaccination.
  • Continued tax credits for EFMLA leave are available only for eligible employers that do not discriminate in favor of highly compensated employees, full-time employees or employees on the basis of employment tenure.

These changes in paid leave tax credits present budget-neutral opportunities for many businesses to provide critically important paid leave benefits to employees. Armstrong Teasdale attorneys are actively monitoring and providing updates regarding the impact of COVID-19. For additional information, visit Armstrong Teasdale’s COVID-19 Resource Center.

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