Federal Tax Credits Now Available When Certain Employees Use Emergency Paid Leave to Help Others Obtain or Recover from COVID-19 Vaccine

The federal Internal Revenue Service (IRS) has announced that certain employers can claim federal tax credits when employees use emergency paid leave to accompany an individual to obtain a COVID-19 vaccination and/or to care for an individual recovering from an injury, disability, illness, or condition related to the vaccine. This credit is available for certain private employers with 499 or fewer U.S. employees, and certain public employers, that are voluntarily providing employees emergency paid leave for various COVID-19-related reasons.

From April 1 through September 30, 2021, the American Rescue Plan Act of 2021 extends tax credits for private employers with 499 or fewer U.S. employees that voluntarily decide to provide emergency paid sick and/or family leave according to the otherwise-expired standards in the Families First Coronavirus Response Act’s (FFCRA) Emergency Paid Sick Leave Act (EPSLA) and Emergency Family Medical Leave Expansion Act (EFMLEA). Since April 1, 2021, a covered use under both the EPSLA and EFMLEA includes, among other reasons for leave, that “the employee is experiencing substantially similar conditions as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.”

Previously, “experiencing substantially similar conditions” was undefined, so it had no impact on leaves administration. Now, however, there is a definition that employers need to consider when evaluating leave requests. Although the statute suggested it would be employee-specific, the now-defined parameters focus on an “individual,” which the FFCRA defines to include:

  • An immediate family member;
  • Someone who regularly resides in the employee’s home; or
  • A similar person with whom the employee has a relationship that creates an expectation that the employee would care for the person.

Additionally, now that “experiencing substantially similar conditions” has a defined meaning, and employees can now use leave for this reason, employers need to be mindful about pay-related issues connected to this specific leave reason. Whether the time off is taken as emergency paid sick leave or emergency paid family leave, employers voluntarily complying and seeking federal tax credits must pay employees for leave taken for these new reasons at two-thirds their regular rate (calculated pursuant to the FFCRA’s standards). Moreover, for these specific absences, the maximum daily amount of pay under the law, and for which tax credits are available, is $200.

Although the IRS’ announcement involves federal law and federal tax credits, it can affect employers subject to local emergency paid sick leave laws currently in effect in Oakland, California, and the District of Columbia (possibly) because both of these laws include as covered uses this now-defined “substantially similar condition” reason. Note, however, that both local laws set their own pay rate calculation standards, which will not necessarily fully align with federal standards. For example, Oakland uses a higher $511 daily pay cap, while D.C. has no daily pay cap. Accordingly, it is possible that employers voluntarily complying with federal law that are subject to these mandatory local laws might receive federal tax credits only for some of the payment they make for a qualifying absence under local law. For example, assume that under Oakland’s ordinance an employee will receive $250 for a one-day absence connected to a “substantially similar condition.” Because, at best, federal tax credits could be available for $200 (not the $250 the employer paid), the employer would only be eligible to receive a federal tax credit for $200 of the $250 amount paid.

As always, issues related to paid leaves can be complex, so employers, especially those operating in multiple jurisdictions, should consult with counsel if they have questions about this new development. 

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.