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The American Rescue Plan Act Extends Tax Credit for Eligible Employers Providing Paid Leave

On March 11, 2021, President Joe Biden signed the American Rescue Plan Act of 2021 (ARPA) into law that provides various forms of financial relief to families and businesses as well as funding to improve vaccination efforts and safely reopening schools. It also extends the tax credit for eligible employers that voluntarily provide paid leave under the Families First Coronavirus Response Act (FFCRA). The credit covers 100% of qualifying wages for FFCRA leave provided between April 1 and Sept. 30 and the qualifying reasons for taking leave are expanded to include leave taken to receive a COVID-19 vaccination or to recover from an injury, disability, illness, or condition related to receiving a vaccination.

Of interest, the maximum tax credit is increasing to $200 per day per employee or $12,000 per employee in aggregate and the employee does not need to take 10 days of unpaid leave to qualify. Covered employers (those with fewer than 500 employees) are not required to provide FFCRA leave to employees — rather, employers can choose whether to provide FFCRA leave to employees and obtain tax credits to offset certain costs associated with providing the leave.

The FFCRA expired at the end of 2020, which eliminated employers’ mandatory obligation to provide emergency paid sick and family leave. In response, the Trump administration signed the 2021 Consolidated Appropriations Act (CAA), permitting employers to decide whether their companies would provide paid leave and, therefore, be eligible for the payroll tax credit. This option was available until March 31, 2020.