The American Rescue Plan Act (ARPA), signed by President Biden on March 11, 2021, extended the previous FFCRA tax credits for COVID sick/leave paid time off, and also added some new tax credit categories for vaccines and time spent waiting for COVID test/diagnosis results. Unlike the 2020 FFCRA mandated paid time off for COVID reasons, the ARPA extension of the previous FFCRA provisions is voluntary by affected employers and each needs to make a decision whether they will offer the ARPA sick/leave time off or choose to not do so. Since the ARPA provisions are for the timeframe April 1-September 30, 2021, employers should make their decision whether to participate in the paid time off policies and related tax credits “sooner rather than later.” Employers eligible to “opt in” to the ARPA sick/leave paid time off with corresponding payroll tax credits are those employers with fewer than 500 employees, to include for-profit, non-profit and also state/local government employers (NOTE—-State and local government employers were not eligible for the previous FFCRA tax credits—they are now for the 6 month period ending September 30, 2021.)
IRS OFFERS TAX CREDITS TO OFFSET ALL OF EMPLOYERS’ PAID TIME OFF COSTS PERTAINING TO COVID REASONS
Studies indicate that workers are much more inclined to get vaccinated and take COVID tests IF they do not lose money by being off for COVID related illness, testing and getting/recovering from COVID vaccines. ARPA extended the tax credit program to eligible employers to encourage those small-medium sized employers to “opt in” and extend the previous FFCRA COVID sick/leave paid time off provisions, from their March 31, 2021 expiration to September 30, 2021. Unlike the 2020 version of FFCRA PTO for COVID related illness/family leave, which was mandatory for employers with less than 500 employees, ARPA does not require that employers participate in the extended COVID paid time off program—-each employer is free to choose to offer the ARPA sick/leave time with corresponding federal tax credits, or to not offer the paid time off. (Can the employer maintain their operations if they offer the program?). If an employer chooses to offer the ARPA version of PTO pertaining to COVID reasons, the Federal government will reimburse the employer for 100% of the cost of wages plus the employer “match” of FICA and Medicare payroll taxes (also to include the employee’s allocable share of group medical costs during the time off). The tax credits are claimed on quarterly IRS 941 payroll tax returns, and the credits can be used to offset IRS tax deposits otherwise due, in advance of the Form 941 quarterly filing.
Tax credits are not available for employers with 500 or more employees—the Biden Administration felt that larger employers would already have PTO policies in place to encourage paid time off for COVID reasons, but did not want smaller employers to lose money on providing the PTO along with the operational impact of having employees on sick/family leave.
TYPES OF COVID SICK/FAMILY LEAVE PTO WHICH PRODUCES TAX CREDITS FOR ELIGIBLE EMPLOYERS
The original Families First Coronavirus Relief Act (FFCRA), enacted in March of 2020, required that employers with less than 500 employees (with a limited exception to employers with less than 50 employees) provide paid time off for employee illness due to COVID as well as family leave to care for children if the schools or day care providers were shut down for COVID reasons. Originally, the FFCRA listed 6 “reasons” for a worker to receive paid time off for COVID reasons, and those same 6 reasons are included in the ARPA extension of the FFCRA (You can find a listing of those original 6 reasons here). ARPA and the Biden Administration created 2 more reasons to qualify for PTO and employer tax credits for the 6 month period April 1-September 30, 2021, which are—1. Time off to obtain the vaccine, and related time off to recover from vaccine side effects; and 2. Time off while awaiting the results of a COVID 19 test or diagnosis. These provisions were obviously added to PTO to encourage both testing for COVID as well as getting vaccinated. The IRS produced a Fact Sheet for the ARPA sick/leave paid time off, which you can find here.
HOW MUCH DOES AN EMPLOYER PAY IN SICK/LEAVE WAGES AND HOW MUCH ARE THE CORRESPONDING PAYROLL TAX CREDITS?
ARPA continues the calculation of an employee’s COVID sick pay which was provided by the FFCRA—–100% of the employee’s regular rate of pay, not to exceed $511 per day, for up to 80 hours/2 weeks while off on COVID emergency sick leave (total sick pay can not exceed 80 hours or $5,110). ARPA actually adds 2 extra weeks to the FFRCA 10 weeks of COVID related family leave pay to permit up to 12 weeks of family leave time (care for children due to school/daycare closures), and removes the requirement that the first 2 weeks be unpaid. ARPA family leave pay is calculated at the rate of 2/3 of an employee’s regular rate of pay, not to exceed $200 per day off ($12,000 total for 12 weeks). Healthcare costs can be allocated to an employee’s regular rate of pay when calculating the 2/3 of pay provision. Employers who offer the ARPA PTO provisions to their employees will receive federal “dollar for dollar” payroll tax credits which cover the entire cost paid to the employees, to include the employer’s cost of the FICA/Medicare tax “matching amounts.” As such, the employer will be “made whole” as to their costs for employee PTO for COVID qualifying sick/family leave provisions.
ALL EMPLOYEES START AT ZERO ON APRIL 1 AS TO THEIR SICK/FAMILY LEAVE TOTAL HOURS AVAILABLE FOR PTO AND TAX CREDITS
The FFCRA contained PTO payout and tax credit limits, per employee, which originally expired at the end of 2020, and then were extended by additional legislation through March 31, 2021. A major provision of the American Rescue Plan Act is to “reset” each employee’s PTO bank to “zero” as of April 1, 2021, As such, for those employers who opt in to the extended sick/leave paid time off with tax credits provisions of the ARPA, each employee “starts over” and is not “dinged” for any previously paid time off for FFCRA wages prior to April 1, 2021. The ARPA “caps” of 80 hours of sick time (to include vaccine time off) and 12 weeks of family leave time apply for the April 1-September 30, 2021 timeframe, starting at zero on April 1, 2021.
THIS IS NOT MANDATORY—-EMPLOYER CHOICE
Employers must have a non-discriminatory ARPA COVID sick/leave pay plan or they will not be entitled to the federal tax credits. Our understanding (although not perfectly clear) is that an employer can opt in to the 80 hours of sick time (which includes the vaccine and COVID testing time off) portion of the program without also offering the expanded family leave time portion of 12 weeks (BUT you may wish to check with your HR professionals about this). Employers must choose between offering COVID sick and family leave PTO with corresponding “make whole” tax credits, OR not opting into the program out of fear of not having adequate staffing to maintain efficient operations (and with concerns that some employees could take a longer than needed vaccine recovery period). SO, each employer must choose whether to opt in or not. We read an excellent article about this employer choice written by a large U.S law firm, Baker and Donelson (Copy of their article is HERE)
COORDINATING TAX CREDITS WITH PAYROLL AND ACCUPAY
Employers who generate sick/leave PTO tax credits must notify AccuPay, or their payroll processor, with details of employee hours of PTO which qualify for the ARPA tax credit. These credits will reduce the employer’s IRS 941 tax deposits and also be reported on the quarterly 941 payroll tax returns. We also suspect that these tax credits will need to be reported on employee W-2 forms, as they were for 2020.
CHALLENGING ALL EMPLOYERS——-EMPLOYEE RETENTION TAX CREDITS!!!
We are finding that many employers are not aware of their opportunity to obtain significant IRS refunds by being eligible for retro 2020 and current 2021 employee retention tax credits (ERC). These credits apply to both for profit and non-profit employers. Eligibility revolves around an “either-or” test, having normal operations “suspended/negatively implacted” by state/local government orders, OR having calendar quarters in 2020 and into 2021 in which gross receipts/revenues declined “significantly” as compared to the same quarter during the pre-pandemic year of 2019. A LINK TO OUR MOST RECENT EMPLOYEE RETENTION TAX CREDIT IS HERE. ASK YOUR CPA OR TAX CONSULTANT TO HELP YOU DETERMINE IF YOU QUALIFY, AND HOW TO CALCULATE THE WAGES ELIGIBLE FOR THE ERC, IN PARTICULAR IF YOU OBTAINED ONE OR MORE PPP LOANS.
AccuPay has filed both amended 2020 IRS 941’s to claim employee retention tax credit refunds, as well as claiming “current” ERC tax credits in Q1, 2021 IRS 941 returns.
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