The American Rescue Plan Expands Employer Payroll Tax Credits For COVID-19 Related Leave 

March 12, 2021

On Thursday March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARP) into law. The ARP grants relief to taxpayers and extends and modifies several of the provisions initially enacted in prior COVID-19 relief bills, including the Families First Coronavirus Response Act (FFCRA) and the 2021 Consolidated Appropriations Act (CAA). Specifically, the FFCRA provided covered employers with refundable tax credits to reimburse them for the cost of providing paid sick and family leave to their employees for COVID-19-related reasons. The FFCRA required covered employers to provide paid sick and family leave, but this requirement expired on December 31, 2020. The CAA, signed into law on December 27, 2020, permitted employers to continue receiving the federal tax credit for allowing employees to take unused FFCRA paid sick and family leave through March 31, 2021. The ARP extends these optional payroll tax credits until September 30, 2021.

The ARP also makes the following changes to the leave provisions of the FFCRA, effective April 1, 2021:

Additional Reasons for Paid Sick and Family Leave

In addition to the reasons originally set forth in the FFCRA, employers will also receive tax credits for providing paid leave to employees who are getting COVID-19 vaccines or recovering from any injury, disability, illness, or condition related to such immunization; or seeking or awaiting the results of a COVID-19 test when the employee has been exposed to COVID-19 or the employer requested the test. Employers are not required to provide paid leave for these reasons, but if they do they can receive a payroll tax credit.

Resets The Limitation on Paid Sick Leave

The ARP allows employers to provide employees who already took 10 days of emergency leave under the FFCRA with an additional 10 days of emergency leave.

Expands and Increases The Tax Credit For Paid Family Leave

Originally under the FFCRA, employers could only take tax credits to cover the cost of providing emergency family leave if the employee was unable to work to care for their child whose school or place of care had been closed or was unavailable due to the public health emergency. The ARP allows employers to take tax credits for emergency family leave arising from any of the reasons set forth in FFCRA (including the newly added reasons discussed above). The ARP also increases the amount of paid leave wages an employer may claim a tax credit for from $10,000 to $12,000.

Non-Discrimination Rules

The ARP also includes new non-discrimination rules that prohibit employers from discriminating with respect to leave availability in favor of highly compensated employees, full-time employees, or employees on the basis of employment tenure with such employer.

Employers that provide FFCRA leave should be aware of these important changes.


Related Practices

We expect that the Department of Labor will provide additional guidance and Cozen O’Connor will continue to monitor and share updates.