Sick Leave Credit Will be Extended: How to Help Your Tax Clients Navigate

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The information in this article was last updated on September 7, 2021. This article relates to the tax laws enacted during the COVID-19 pandemic. These laws may have expired or reverted to their original state

Since it was first signed into law in March 2020, the Families First Coronavirus Response Act (FFCRA) has been extended and altered multiple times. The most recent extension and updates came as part of the American Rescue Plan Act (ARPA). Here’s answers to your clients’ FAQs on the FFCRA, its extensions, and what it means for them.

What is the Families First Coronavirus Response Act (FFCRA)?

Originally, the FFCRA required businesses with less than 500 employees to offer two weeks (80 hours) of fully-paid sick leave to employees who were quarantined or ill with COVID-19 and up to twelve weeks of leave at ⅔ an employee’s regular pay rate to care for quarantined individuals or children whose schools or childcare facilities were closed due to COVID-19. It also allowed businesses claim the full amount of any required leave as a tax credit.

Employers could receive a tax credit for the full amount of any FFCRA-qualified leave they paid to their employers. 

Is FFCRA leave still mandatory?

No. Even though the tax benefits of the FFCRA were extended, it’s no longer mandatory to offer paid leave for qualifying COVID-19-related situations. However, employers can still take the tax credits if they do choose to offer FFCRA-qualifying paid sick or family leave. 

Can my clients still get the sick leave credit on their taxes?

Yes, if employers choose to offer paid leave for FFCRA-qualifying reasons, they can still claim the FFCRA Paid Leave Credits for any qualifying leave paid before November 2021.

When do the FFCRA sick leave credits expire?

While the act was originally set to expire at the end of 2020, it was extended to March 31, 2021 by the Consolidated Appropriations Act and then again to September 30, 2021 by the American Rescue Plan Act. Your clients can’t receive the tax credit for the cost of any FFCRA paid leave after this date. 

How else did the ARPA change the FFCRA?

In addition to extending the tax credits, the ARPA made several other changes to the FFCRA. The list of qualifying reasons for taking leave now include getting a COVID-19 vaccine or recovering from side effects from the vaccine. After April 1, 2021 all employees can qualify for the 10 day sick leave period again, even if they already exhausted this leave the previous year or at the beginning of 2021, and employers can receive the tax credit for this leave.

What do my clients need to do to claim the FFCRA leave credit?

Form 941 for 2021 (the form that businesses use to file quarterly taxes) includes lines and worksheets to calculate qualified sick and family leave wages. Employers can also file Form 7200 to request advance payments of the credits in order to cover the cost of qualifying sick leave sooner. 

Whether they choose to apply for the credit with their quarterly taxes or request an advance of the credit, the Department of Labor recommends they keep the following records:

  • “The name of your employee requesting leave;
  • The date(s) for which leave is requested;
  • The reason for leave; and
  • A statement from the employee that he or she is unable to work because of the reason.”

If an employee requests leave to care for a child, they’ll also need to record:

  • “The name of the child being cared for;
  • The name of the school, place of care, or child care provider that has closed or become unavailable; and
  • A statement from the employee that no other suitable person is available to care for the child.”

How can self-employed individuals claim the FFCRA leave credits?

There’s a separate form for self-employed individuals to claim sick or family leave credits. They’ll need to complete the new Form 7202 and attach it to their Form 1040 (all of which can be completed in your TaxSlayer Pro software). Remember, when you’re calculating their net self-employment earnings, you can use their 2019 or 2020 income, whichever is higher.