Update on paid sick and family leave tax credit

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The pandemic has lasted much longer than anyone originally thought it would, which is why the paid sick and leave family credit in March 2020 by the Families First Coronavirus Response Act (FFCRA), were originally set to expire at the end of 2020. To provide additional relief through September 30, 2021, these credits were extended and amended by the COVID-related Tax Relief Act of 2020 and again by the American Rescue Plan of 2021. The IRS has updated their FAQ’s to reflect these changes.

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Who is eligible for these tax credits?

Qualified businesses are eligible if they have fewer than 500 employees and pay “qualified sick leave wages” to those who are unable to work (including telework) due to various scenarios as listed below. Click on the image below to enlarge.

Eligible employers are entitled to receive a credit for paid sick leave and family leave plus health plan expenses, and the employer’s share of Medicare tax on leave provided through September 30, 2021.

How do employers of qualified businesses claim the credits?

  • Claim refundable credits on the federal employment tax returns (e.g. Form 941)
  • Reducing federal employment tax deposits (Be careful you don’t reduce the tax deposits by too much! Watch out for those penalties.)
  • IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19

I hope everyone is staying safe and healthy, but if you and/or your employees are affected, the paid sick and family leave tax credit may help get through the rough patch. Please consult with a qualified Henry+Horne tax professional for advice.

Christina V. Henning, CPA