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August 20, 2021

REMINDER: The Refundable Payroll Tax Credit Remains Available for Employers Who Provide Emergency Paid Sick Leave and Family Leave

Recall that when the Families First Coronavirus Response Act (FFCRA) expired on December 31, 2020, employer obligations to provide sick leave under the FFCRA became optional as of January 1, 2021. However, under the Consolidated Appropriations Act, 100% of refundable payroll tax credits remained available through March 31, 2021, to incentivize employers to continue to provide paid sick leave to employees. Given the then ongoing surge of the pandemic, the American Rescue Plan Act of 2021 (ARPA), further extended the refundable tax credit incentive through September 30, 2021.

How To Claim the Tax Credit

Eligible employers have two options for claiming tax credit for leave benefits voluntarily provided to employees:

  • Claim the tax credits each quarter on their federal employment tax returns (Form 941, Employer’s Quarterly Federal Tax Return)
  • Withhold the federal employment taxes that would have been deposited up to the eligible credit amount. Notably, these taxes include federal income tax withheld from employees, as well as the employer’s and employees’ share of social security and Medicare taxes.

Additionally, when calculating credits, employers can include qualified health plan expenses, as well as their share of Medicare tax for those wages.

For more information on how eligible employers can claim tax credit, visit the IRS website.

The Future of the Tax Credit

While the tax credit under the ARPA is set to expire on September 30, 2021, employers are reminded to continue to take advantage of this benefit. Considering that the effects of COVID-19 continue to impact the health and safety of the workplace, there is the realistic possibility that the tax incentive may be extended beyond this date. PB&W will continue to monitor this and will provide any update as applicable in a future e-blast. In the meantime, if you have any questions regarding the tax credit, or any other employment law related issue, please contact PB&W’s employment law department for guidance and assistance.


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