Paid leave for employees impacted by COVID-19 in 2021

Payroll tax credits available for certain employers


Authored by RSM US LLP

The American Rescue Plan Act of 2021 (Act) enacted in March contained many tax provisions, including a payroll tax credit for COVID-related paid leave provided to employees in 2021. These paid leave provisions build upon the paid sick leave and paid family leave rules applicable to 2020 under the Families First Coronavirus Response Act (FFCRA).

The FFCRA was passed in March of 2020 and imposed paid leave requirements on employers with fewer than 500 employees. Employees impacted by certain COVID-19 events were eligible for paid sick leave and paid family leave from April 1, 2020 through Dec. 31, 2020. Employers providing this paid leave were entitled to payroll tax credits on their 2020 Forms 941, Employer’s Quarterly Federal Tax Return. For more details, see our article regarding payroll tax relief for employers.

The Consolidated Appropriations Act passed in December of 2020 allowed employers to voluntarily provide paid sick leave and paid family leave to employees from Jan. 1, 2021 to March 31, 2021, under the same terms as applied to 2020. Under the new Act, paid leave can be provided on a voluntary basis from April 1, 2021 through Sept. 30, 2021. Eligible employers can claim payroll tax credits on their 2021 Forms 941 for the applicable quarters. 

Although the new Act incorporates many provisions from the FFCRA, there are some differences. For example, employees can receive paid leave if they are seeking or awaiting the results of a COVID-19 medical diagnosis or test due to exposure to the virus or because their employer has requested the diagnosis or test. In addition, paid leave can be provided to employees obtaining immunizations related to COVID-19 or recovering from any injury, disability, illness or condition related to such immunizations. Furthermore, certain governmental entities that are tax-exempt under section 501(c)(3) are now eligible for the payroll tax credit.

The IRS has not yet updated its FAQs regarding paid leave for the new Act, but has issued a Fact Sheet