By Grant S. Gibeau, Attorney, Felhaber Larson
President Joe Biden signed a sweeping $1.9 trillion COVID-19 economic relief package, known as the American Rescue Plan Act of 2021 (ARPA) into law March 11. The ARPA contains several provisions covering an employer’s ability to seek tax credits for providing its employees with COVID-19-related paid sick and family leave similar to the leave previously mandated by the Families First Coronavirus Response Act (FFCRA).
Although paid sick and family leave arising from COVID-19 is not something an employer is still required to provide (barring any state or local law to the contrary), the ARPA implements several changes with respect to an employer’s ability to receive a tax credit for voluntarily providing covered leave after April 1, 2021.
As noted, covered employers no longer are required to provide emergency paid sick leave or emergency paid family leave for reasons related to COVID-19. However, covered employers have the ability, through Sept. 30, 2021, to receive payroll tax credits covering wages paid to employees who take COVID-19-related leave.
Below is a summary of common questions regarding the scope and availability of the tax credit under the ARPA.
Which Employers Qualify for the Tax Credit?
Private employers with fewer than 500 employees qualify for the tax credit if they offer their employees paid leave for the reasons discussed later in this article.
Local governments appear to be eligible for the tax credit for covered leave taken by their employees. This is markedly different from the FFCRA, which expressly exempted all public employers. Here, the ARPA tax credits are expressly unavailable to “the Government of the United States or to any agency or instrumentality thereof.” As a result, it appears that local governments (which are state-created entities and not an “agency or instrumentality” of the federal government) are now eligible.
However, the IRS has not yet issued any guidance answering this question, so local governmental employers should consult with legal counsel before implementing an ARPA paid leave plan to determine whether any subsequently issued guidance by the IRS alters this conclusion.
Must Employers Grant Leave?
No. Unlike under the FFCRA, employers are not required to provide an employee with paid sick or family leave due to COVID-19. However, employers still must comply with any other applicable state or federal law with respect to an employee’s need for leave, for example, the Americans with Disabilities Act.
What Reasons for Leave Are Covered?
Employees who take leave for one of the following reasons qualify for the tax credit. The first six reasons are the same as those under the FFCRA, and the ARPA added reasons Nos. 7-9 for leave.
- The employee is subject to a federal, state or local quarantine or isolation order related to COVID-19.
- The employee has been advised by a health care provider to self-quarantine related to COVID-19.
- The employee is experiencing COVID-19 symptoms and is seeking a medical diagnosis.
- The employee is caring for an individual subject to an order described in No. 1 or self-quarantine as described in No. 2.
- The employee is caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19.
- The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretaries of Labor and Treasury.
- The employee is seeking or awaiting the results of a diagnostic test for or a medical diagnosis of COVID-19 and such employee has been exposed to COVID-19 or the employee’s employer has requested such test or diagnosis.
- The employee is obtaining immunization related to COVID-19.
- The employee is recovering from any injury, disability, illness or condition related to such immunization.
How Much Covered Leave Is Available?
Employers may seek the credit for employees who take leave for up to 12 weeks (as discussed below).
The ARPA additionally resets an employee’s leave bank effective April 1, 2021, meaning that if an employee previously took the maximum amount of leave prior to April 1, he or she may again be eligible for leave covered by the tax credit.
What Rate of Pay Is Reimbursable as a Credit?
An employee is entitled to receive a rate of pay that varies depending on the reason an employee takes leave:
If an employee takes leave due to reason No. 1, 2 or 3 in the list above, the employee is entitled to his or her regular rate of pay (up to $511 per day) for up to 10 days and is further eligible to receive two-thirds of his or her regular rate of pay (up to $200 per day) for an additional 10 weeks afterward (up to a total cap of $12,000).
For the other reasons listed above, the credit covers two-thirds of the employee’s regular rate of pay (up to $200 per day) for 12 weeks total (up to a total cap of $12,000).
Can Leave Only Be Provided to a Portion of an Employer’s Workforce?
The ARPA-provided tax credit is not available to employers that provide the leave only to a portion of their workforce if eligibility is limited to:
- Highly compensated employees (e.g., an employee who earns more than $130,000 annually);
- Full-time employees; or
- Discrimination based on employment tenure.
As a practical matter, if an employer is only providing the paid leave to a portion of its workforce, the employer should make sure that doing so does not have a disparate impact on members of specific protected classes (race, age, sex, etc.).
Can Employers Only Provide Leave for Some of the Covered Reasons?
The ARPA itself is silent with respect to whether an employer can still receive the tax credit if employers elect to only provide paid leave for some but not all of the covered reasons for leave. The ARPA is similarly silent with respect to whether an employer can elect to make the leave available for a shorter period (i.e., by discontinuing the availability of paid leave before Sept. 30).
Given the fact that an employer’s decision to provide paid leave is now voluntary, it appears likely that an employer can grant leave for a shortened period or for only some of the covered reasons while still qualifying for the tax credit; however, this conclusion is not certain. Both the Department of Labor and the IRS have stated that guidance regarding ARPA-covered leave is forthcoming but said guidance has not yet been issued.
The ARPA provides employers with some tax relief should they elect to allow employees to continue to take paid leave for reasons related to COVID-19, including for the expanded reasons related to an employee receiving COVID-19 vaccination. Again, although an employer is not required to provide this type of leave, employers may want to consider whether it makes sense to offer these benefits to employees given the tax relief in doing so.