IRS Answers Family, Medical Leave Credit Questions

The IRS has posted new guidance on its website, in the form of frequently asked questions (FAQs), on the family and medical leave credit relating to COVID-19 (IR-2021-26, 1/29/21).

Feb 8th 2021
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The tax credit, which was authorized by the Families First Coronavirus Response Act (FFCRA) for paid family leave, was extended and modified by the Consolidated Appropriations Act (CAA) in late December.

The new FAQs can be found at COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs. The FFRCA credit was scheduled to expire on December 31, 2020. Now the CAA extends the credit through March 31, 2021 with a few modifications.

Background: Under the FFRCA, an eligible employer with fewer than 500 employees is entitled to a tax credit for providing paid sick and family leaves to employees during the period spanning April 1, 2020 through December 31. 2020. The tax credit is available if an employee is unable to work, including telework, because of COVID-19 quarantine, or self-quarantine, or has COVID-19 symptoms and is seeking a medical diagnosis.

Eligible employers may claim credit for paid sick leave provided to an employee for up to two weeks (up to 80 hours) at the employee's regular rate of pay up to $511 per day and $5,110 in total.

Furthermore, an eligible employer may receive the tax credit for employees who are unable to work due to caring for someone with coronavirus or caring for a child because the child's school or place of care is closed, or the paid childcare provider is unavailable due to the coronavirus. Eligible employers may claim the credit for paid sick leave provided to an employee for up to two weeks (up to 80 hours) at two-thirds the employee's regular rate of pay, or up to $200 per day and $2,000 in total.

Employers are also entitled to a credit for paid family leave provided to an employee equal to two-thirds of regular compensation, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the credit.

Eligible employers are entitled to immediately receive a credit in the full amount of the paid sick leave and family leave plus related health plan expenses and the employer's share of Medicare tax on a qualified leave. The refundable credit is applied against certain payroll taxes on wages paid to all employees.

An employer may claim the credits on their federal employment tax returns, but it can benefit faster by reducing its federal payroll tax deposits. If there are insufficient taxes to cover the amount of the credits, the employer may request an advance payment of the credits from the IRS by submitting Form 7200.

As before, employers are eligible for this credit if they provided paid leave to employees for COVID-19 related reasons. The revised credit is no longer available for employees who have exhausted their leave entitlements. However, employers may still voluntarily provide paid leave to these workers.

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