The Internal Revenue Service (IRS) recently issued new guidance for employers about the FMLA tax credits created by the Families First Coronavirus Response Act (FFCRA) and then expanded by the American Rescue Plan Act (ARPA). Qualified employers can use these tax credits to pay for the salaries and group health insurance coverage of employees who are out on either type of leave. The new FAQs apply specifically to paid leave after March 31, 2021, and cover how ARPA changed the paid leave program.
How to Claim FLMA Tax Credits
The FAQs cover how employers may claim the paid sick and family leave credits for leave between March 31, 2021, and September 30, 2021, including filing for the credits and calculating the applicable credit amounts. They also address advance payments to employers and refunds of the credits.
Under the ARPA, businesses and tax-exempt organizations with fewer than 500 employees and certain governmental employers may choose to offer their employees paid leave through September 30, 2021. Employees may claim the credit for specific COVID-19 related reasons, and an employee can take the leave either for their own health needs or to care for family members. Employees may receive up to ten days of paid sick leave and up to 12 weeks of paid family leave. Specific self-employed individuals in similar circumstances are entitled to equivalent credits.
Eligible Employee Expenses for FLMA Tax Credits
Eligible Employers are entitled to receive the credits for the following expenses related to employees on leave:
- Qualified leave wages;
- Specific collectively bargained contributions;
- Allocable qualified health plan expenses; and
- The employer’s share of social security and Medicare taxes imposed on the qualified leave wages.
The credit is allowed against the employer’s share of the Medicare tax paid to all employees (and railroad employers the Railroad Retirement Tax). If the amount of the credit exceeds the employer’s tax liability, then the excess is treated as an overpayment and is fully refundable to the employer.