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By Gary A. Matthews and Michael A Frye of Jenkins Fenstermaker, PLLC on 10/29/2020
Requirements for Taking the FFCRA Paid Leave Tax Credit

In early 2020, many US states issued shutdown orders to help the spread of the coronavirus. Anticipating widespread need for worker leave and the strain of the shutdown and quarantine orders on employers, the US Congress passed the Families First Coronavirus Response Act (FFCRA). The Act helps small and midsize employers provide employees paid leave necessary for COVID-19-related reasons and is funded by a paid leave tax credit. This blog helps employers seeking to take advantage of these employer tax credits understand who is eligible under the act and the conditions for taking advantage of what is essentially government-funded employee leave.

The Job of the FFCRA Paid Leave Tax Credit

Even after the shutdown and shelter-in-place orders lifted, those exposed to or infected by the virus had to self-isolate or quarantine. The FFCRA is an attempt to help both employers and employees contain the virus while recognizing the very real problems this excess leave can cause.

The FFCRA requires small and midsize employers to provide paid leave to employees for COVID-19. It contains two leave provisions, Emergency Paid Sick Leave (EPSL) and the Emergency Family and Medical Leave Act. Recognizing that employers are not necessarily in a position to fund this additional leave, the FFCRA offers assistance through refundable tax credits. FFCRA compliance requires employers to understand FFCRA eligibility, how the paid leave tax credit works, and recordkeeping obligations.

Key Definitions for Paid Leave Tax Credit Eligibility

The FFCRA allows a covered employer to seek refundable tax credits for qualified leave (under the EPSL and the EFMLA) and qualified health plan expenses when the leave is for one of the permissible COVID-related reasons between April 1 and December 31, 2020. To be eligible for paid leave tax credits, employers must first understand basic FFCRA definitions. Employers need to know the following definitions:

  • A covered employer is an employer with fewer than 500 employees.
  • Qualified leave is leave taken between April 1, 2020 and December 31, 2020, if necessitated by one of the following COVID-related reasons:
    • Receiving a quarantine order or self-isolation notice issued by a local health department;
    • Receiving medical advice from a health care provider to self-quarantine due to COVID-related concerns;
    • Seeking medical care and a diagnosis due to concerns related to COVID-19 symptoms;
    • Taking care of an individual who cannot work due to a quarantine order or self-isolation notice;
    • Caring for a child because the school or childcare provider’s place of business is closed due to COVID-19; or
    • Experiencing a substantially similar condition specified by federal government agencies.
  • Qualified health plan expenses are expenses a covered employer incurs for a group health plan, as defined by IRC § 5000(b)(1) to the extent those expenses are not included in the employee’s gross income under IRC § 106(a).

How EPSL Leave Works

The first leave provision in the FFCRA provides for emergency paid sick leave (EPSL). Employees are eligible for paid leave for self or to care for another due to one of the six bases for qualified leave. The maximum amount of paid leave authorized under the EPSL is 80 hours (for full-time employees) with reduced pay for part-time employees capped at $511 per day or $5,110.

Significantly, employees cannot use other employer provided leave such as vacation or sick days to supplement EPSL leave, and employees must use leave in the same increments as their normal workday (e.g., eight-hour shift).

How EFMLA Leave Works

The FFCRA’s EFMLA is an extension of the Family and Medical Leave Act. Unlike EPSL, employees may take EFMLA for a qualifying COVID-related reason only to care for another. The first two weeks of EFLMA are unpaid (although an employee may use EPSL for that period). The employee is eligible for a maximum of 12 weeks of EFMLA leave at two-thirds the employee’s normal pay rate. The maximum pay rate is $200 per day or $10,000 total.

Like EPSL leave, employees may not supplement EFMLA with other employer paid leave, and they must use EFMLA leave in the same increments as their normal workday. Unlike EPSL leave, which has no minimum employment requirements, employees are eligible for EFMLA leave only after 30 days of employment.

Unlike EPSL leave, which has no minimum employment requirements, employees are eligible for EFMLA leave only after 30 days of employment. 

How the FFCRA Credits Work

The FFCRA allows employers a tax credit against the taxes imposed on employers by IRC § 3111(a) and IRC § 3221(a). To the extent the credit exceeds the employer’s tax, the employer may treat the excess as an overpayment and seek a refund under IRC § 6402(a) or IRC § 6413(a).

Additionally, employers are not subject to tax under IRC § 3111(a) or IRC §3221(a) for the EPSL and EFMLA wages, and employers are entitled to an additional credit for Medicare tax on such wages.

To provide the earliest possible relief to employers, the FFCRA allows employers to apply the FFCRA credits up front. In other words, employers may retain the full amount of allowable credits without depositing them with the Internal Revenue Service.

Recordkeeping Required for FFCRA Paid Leave Tax Credit

Employers who wish to take advantage of the tax credit for FFCRA paid leave must maintain certain records and documentation to support the claim for the tax credit. These records must include the following regarding each employee for whom the employer claims a tax credit under the FFCRA:

  • Name;
  • Dates of leave requested;
  • Reason for the requested leave (from the six provided in the FFCRA);
  • Statement explaining the facts of the employee’s leave and why it applies under the reason listed immediately above;
  • Name of the governmental unit or entity that issued the quarantine or isolation order, if any;
  • Name of the health care provider who advised the employee or the employee’s child to quarantine, if any;
  • Name of the child the employee was caring for, if any;
  • Name of the childcare facility, provider, or school closed or unavailable if such was the basis for the leave; and
  • Statement from the employee that no other suitable person could care for the child during the leave period.

Help for Employers Dealing with FFCRA Tax Credits and Related Matters

Being an employer is demanding in the best of times. Legislation passed as a result of COVID-19 has complicated matters further. Employers need guidance from knowledgeable sources to navigate this new season. The answer is consulting with an experienced employer lawyer.

In West Virginia, employers rely on Jenkins Fenstermaker, PLLC for business and commercial matters, labor and employment questions, and litigation services, to name a few. West Virginia employer lawyers Gary Matthews and Michael Frye advise employers on the FFCRA paid leave tax credit and related legislation to keep you up-to-date on employer paid leave and more. For a consultation, call (304) 523-2100 or complete this online contact form.