On July 29, the U.S. Department of the Treasury announced[1] regulatory changes providing new qualifying reasons for tax credits under the American Rescue Plan Act (ARPA). Specifically, eligible employers may now claim payroll tax credits if they provide Emergency Paid Sick Leave (EPSL)[2] or Emergency Family and Medical Leave (EFML)[3] to employees who take time off to either (1) accompany an individual to receive an immunization against COVID-19, or (2) care for an individual who is recovering from an immunization against COVID-19.[4]
The expanded EPSL and EFML leave provisions are discretionary, and the associated tax credits are limited to employers that provide such leave between April 1 and September 30, 2021, in compliance with the ARPA.
The Internal Revenue Service (IRS) also updated its “Frequently Asked Questions” to reflect the expanded reasons for tax credits.[5] The updated IRS guidance contains helpful information for employers looking to claim tax credits under the new qualifying reasons. This Special Bulletin covers the new information related to the expanded grounds for tax credits.
The American Rescue Plan Act – A Brief Overview
The President signed the ARPA into law on March 11, 2021. Among other things, the Act provides tax credits[6] to employers that offer their employees EPSL or EFML for certain qualifying reasons. Tax credits are available for qualifying leave taken from April 1 through September 30, 2021.[7]
An eligible employer may claim a tax credit after the fact, so long as it provided an employee paid leave for a qualifying reason during the operative period.[8] Employers may claim tax credits for up to 80 hours of EPSL[9] and 12 workweeks of EFML.[10]
New Grounds for ARPA Tax Credits
Eligible employers may now claim tax credits if they allow employees to take EPSL or EFML for either of the following qualifying reasons: (1) to accompany an individual to obtain immunization related to COVID-19; or (2) to care for an individual who is recovering from any injury, disability, illness, or condition related to the immunization.[11]
The Treasury Department provides that the term “individual” means (1) an employee’s immediate family member, (2) a person who regularly resides in the employee’s home, or (3) a similar person with whom the employee has a relationship that creates an expectation that the employee would care for the person if he or she were quarantined or self-quarantined. “Individual” does not include people with whom the employee has no personal relationship.[12]
In order to claim tax credits for EPSL or EFML, employers should report their total qualified leave wages for each calendar quarter on their federal employment tax returns, usually Form 941, Employer’s Quarterly Federal Tax Return.[13] The IRS also allows employers to seek advance payments on tax credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.[14] Employers that want to seek an advance payment of ARPA tax credits for the third quarter of 2021 must do so by November 1, 2021 or the date they file their Form 941 for the third quarter, whichever is earlier.[15]
The IRS recommends that employers first apply their available credit for qualified sick leave wages, and then their available credit for qualified family leave wages when applying for the tax credits.[16]
Recordkeeping Guidance
If an eligible employer wants to claim EPSL or EFML tax credits, then it should retain certain records and documentation to support its claims. The IRS recommends that employers collect a written request from an employee requesting EPSL or EFML.[17]
The written request should contain the following: (1) the employee’s name; (2) the date(s) for which leave is requested; (3) a statement of the COVID-19-related reason justifying the leave request, as well as written support for that reason; and (4) a statement that the employee is unable to work or telework for the stated reason.[18] Where the request is based on accompanying an individual obtaining vaccination or caring for an individual recovering from vaccination, the statement should include the date of vaccination.[19]
The IRS also recommends that employers collect and maintain records of the following information:
Finally, the IRS recommends that employers seeking tax credits maintain their records, available for IRS review, for at least six years after either the date the tax becomes due or is paid, whichever is later.[21] The IRS notes that employers may require additional information from employees requesting EPSL or EFML.[22]
LCW attorneys are familiar with the operation of the ARPA and its payroll tax credit provisions. Attorneys are available to assist employers revise their leave policies in order to qualify for the new tax credits.
[1] U.S. Treasury Department, To Enable More Vaccinations, Treasury Expands Paid Leave Tax Credit (July 29, 2021) <https://home.treasury.gov/news/press-releases/jy0296> (as of Aug. 4, 2021) (Treasury Dept. Press Release).
[2] See American Rescue Plan Act of 2021 (ARPA) § 9641(a), 26 U.S.C. § 3131.
[3] See ARPA § 9641(a), 26 U.S.C. § 3132.
[4] NOTE: The qualifying reasons for EFML under the ARPA include all eight of the qualifying reasons for EPSL. In other words, if an employee is qualified to take EPSL, then the same qualifying reason would allow the employee to take EFML. See ARPA § 9641(a), 26 U.S.C. §§ 3131(c)(2)(A), 3132(c)(2)(A).
[5] See IRS, Tax Credits for Paid Leave Under the American Rescue Plan Act of 2021 for Leave after March 31, 2021 (Updated on July 29, 2021) <https://www.irs.gov/newsroom/tax-credits-for-paid-leave-under-the-american-rescue-plan-act-of-2021-for-leave-after-march-31-2021> (as of Aug. 4, 2021) (IRS Guidance).
[6] See ARPA § 9641(a), 26 U.S.C. §§ 3131(a), 3132(a).
[7] ARPA § 9641(d); see also 26 U.S.C. §§ 3131(h), 3132(h).
[8] IRS Guidance, supra note 5, Question 62. What if an Eligible Employer does not initially pay an employee qualified leave wages when the employee is eligible for those wages, but pays those wages at a later date? (June 11, 2021) <https://www.irs.gov/newsroom/tax-credits-for-paid-leave-under-the-american-rescue-plan-act-of-2021-how-to-claim-the-credits> (as of Aug. 4, 2021).
[9] ARPA § 9641(a), 26 U.S.C. § 3131(c)(2)(A)(ii).
[10] ARPA § 9641(a), 26 U.S.C. § 3132(c)(2)(A)(ii).
[11] See IRS Guidance, supra note 5, Questions 27a, 38a. Do “qualified sick[/family] leave wages” include wages paid for leave taken to accompany an individual who is obtaining a vaccination or to care for an individual who is recovering from vaccination? (July 29, 2021) < https://www.irs.gov/newsroom/tax-credits-for-paid-leave-under-the-american-rescue-plan-act-of-2021-determining-the-amount-of-the-tax-credit-for-qualified-sick-leave-wages>, <https://www.irs.gov/newsroom/tax-credits-for-paid-leave-under-the-american-rescue-plan-act-of-2021-determining-the-amount-of-the-tax-credit-for-qualified-family-leave-wages> (as of Aug. 4, 2021).
[12] See FFCRA § 5102(a); 29 C.F.R. § 826.20(a)(5) (defining “individual”).
[13] IRS Guidance, supra note 5, Question 52. How does an Eligible Employer claim the refundable tax credits for qualified leave wages (plus allocable qualified health plan expenses, certain collectively bargained contributions, and the employer’s share of social security and Medicare taxes)? (June 11, 2021) <https://www.irs.gov/newsroom/tax-credits-for-paid-leave-under-the-american-rescue-plan-act-of-2021-how-to-claim-the-credits> (as of Aug. 4, 2021).
[14] IRS Guidance, supra note 5, Question 55. May an Eligible Employer get an advance payment of the leave credits? (June 11, 2021) <https://www.irs.gov/newsroom/tax-credits-for-paid-leave-under-the-american-rescue-plan-act-of-2021-how-to-claim-the-credits> (as of Aug. 4, 2021).
[15] IRS Guidance, supra note 5, Question 61. What is the last day taxpayers may submit a Form 7200 requesting an advance payment of leave credits? (June 11, 2021) <https://www.irs.gov/newsroom/tax-credits-for-paid-leave-under-the-american-rescue-plan-act-of-2021-how-to-claim-the-credits> (as of Aug. 4, 2021). NOTE: The deadline for advance payments during the second quarter of 2021 has already passed.
[16] IRS Guidance, supra note 5, Question 63. In what order should an Eligible Employer apply the tax credits for qualified sick leave wages and qualified family leave wages against its share of Medicare taxes? (June 11, 2021) <https://www.irs.gov/newsroom/tax-credits-for-paid-leave-under-the-american-rescue-plan-act-of-2021-how-to-claim-the-credits> (as of Aug. 4, 2021).
[17] IRS Guidance, supra note 5, Question 64. What information should an Eligible Employer receive from an employee and maintain to substantiate eligibility for the paid sick leave or paid family leave credits? (June 11, 2021) <https://www.irs.gov/newsroom/tax-credits-for-paid-leave-under-the-american-rescue-plan-act-of-2021-how-should-an-eligible-employer-substantiate-eligibility-for-tax-credits-for-qualified-leave-wages> (as of Aug. 4, 2021).
[18] Ibid.
[19] Ibid.
[20] IRS Guidance, supra note 5, Question 65. What additional records should an Eligible Employer maintain to substantiate eligibility for the paid sick leave or paid family leave credit? (June 11, 2021) <https://www.irs.gov/newsroom/tax-credits-for-paid-leave-under-the-american-rescue-plan-act-of-2021-how-should-an-eligible-employer-substantiate-eligibility-for-tax-credits-for-qualified-leave-wages> (as of Aug. 4, 2021).
[21] IRS Guidance, supra note 5, Question 66. How long should an Eligible Employer maintain records to substantiate eligibility for the paid sick leave or paid family leave credit? (June 11, 2021) <https://www.irs.gov/newsroom/tax-credits-for-paid-leave-under-the-american-rescue-plan-act-of-2021-how-should-an-eligible-employer-substantiate-eligibility-for-tax-credits-for-qualified-leave-wages> (as of Aug. 4, 2021).
[22] IRS Guidance, supra note 5, Question 67. May an Eligible Employer choose to require information from employees in addition to that described in these FAQs? (June 11, 2021) <https://www.irs.gov/newsroom/tax-credits-for-paid-leave-under-the-american-rescue-plan-act-of-2021-how-should-an-eligible-employer-substantiate-eligibility-for-tax-credits-for-qualified-leave-wages> (as of Aug. 4, 2021).
This Special Bulletin is published for the benefit of the clients of Liebert Cassidy Whitmore. The information in this Special Bulletin should not be acted upon without professional advice.