President Joe Biden signed the $1.9 trillion American Rescue Plan into law Thursday. While the latest COVID-19 aid package is missing some of the dramatic employment law changes in the House’s original version, such as a $15 minimum wage and extension of required paid sick leave, the final version does extend two key payroll tax credits.
First, the statute extends the tax credits originally created by the Families First Coronavirus Response Act (FFCRA) through September 30, 2021. The requirement to provide paid sick and family leave under the FFCRA for reasons tied to COVID-19 expired on December 31. However, employers who voluntarily permit their employees to take coronavirus-related sick or family leave will receive a refundable payroll tax credit for those wages (subject to statutory caps) and certain health care expenses. The statute adds the following new reasons for which an employer can provide qualified sick leave subject to the tax credit: “the employee is obtaining immunization related to COVID-19 or recovering from any injury, disability, illness, or condition related to such immunization.”
On April 1, the American Rescue Plan refreshes the bank of paid sick leave for which employers can receive the tax credit. Employees who have exhausted the 10 days of leave under the FFCRA will now be eligible for 10 more. The bill does not refresh the amount of paid family leave employers can receive the tax credit for. If employees have exhausted the 12 weeks of family leave under the FFCRA because their child's day care was closed, for example, their employer cannot get the tax credit for offering any additional family leave.
Additionally, the statute extends the Employee Retention Credit through December 31, 2021. Qualifying employers who have suffered a 20% reduction in revenues or been shut down due to government mandate will be entitled to a payroll tax credit of 70% of qualified wages up to $10,000 for each quarter in 2021 (in other words, a $7,000 quarterly credit per employee). As we have covered in previous alerts, the amount of qualified wages depends on whether the employer has more than 500 employees. If the employer has 500 or more employees, qualified wages only include wages paid to workers who are not performing services. If the employer has fewer than 500 employees, qualified wages include all wages paid to workers.
The statute also increases the value of the Employee Retention Credit for “severely financially distressed employers” who can show that they suffered a 90% reduction in revenues. In that case, no matter the number of employees, qualified wages include all wages to workers.