Employment Update – Leave for COVID-19 absences in 2021 by Ted Storer
Employers continue to face issues related to COVID-19 in 2021. Most states, including Indiana, have seen an increase in positive test results and continue to be wary of exposure to the virus. Employers are looking for certainty on what benefits they have to provide, if any, with the start of the New Year.
In 2021, employers are not required to provide any additional paid leave benefits for employees who are ill due to the Coronavirus. The federally mandated leave expired on December 31. Indiana’s General Assembly has not passed any legislation mandating paid time off. Under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, employers are given a tax credit for providing paid leave for employees who miss work due to a qualified COVID-19 related absence.
Follow your policies – most employers provide paid time off on a calendar year basis. That paid time off could be designated as sick leave or vacation. Follow your existing rules for 2021.
Tax Credits for Paid Leave in Quarter 1 – As positive test results have not declined; Congress has tried to incentivize employers to provide paid leave for COVID-19 related illnesses in 2021. While not mandating paid leave,[1] Congress did extend the tax credit for employers providing paid leave. This tax credit only applies to leave needed prior to March 31, 2021.
Employers eligible for the 2021 tax credit – It appears that the tax credit for paid leave applies, as it did under the FFCRA, to all private employers with fewer than 500 employees.
These tax credits are only available to private employers. Government employers (with few exceptions) are not eligible Employers and are not entitled to receive tax credits for providing paid leave wages in 2021. [2]
Eligible Employees – The tax credit only applies to paid leave provided to employees who have qualified COVID-19 related absences. Those would be for employees who have COVID-19, who have symptoms and are waiting to be tested, and those employees who are caring for a family member who has been tested.
As the tax credit is an extension of the tax credit provided in the CARES Act, an employee is not entitled to new leave. Stated another way, if an employee took two weeks of paid FFCRA leave in 2020, the employer is not eligible for a tax credit for paid leave for COVID-19 related absences in the first quarter of 2021.
[1] In 2020, Congress passed the Families First Coronavirus Response Act (FFCRA) which required employers to provide paid leave for employees who were absent due to COVID-19 qualified reasons through December 31, 2020. Employees were entitled to two weeks of paid leave at either 100% or 66% (2/3rds) of the regular wage rate, and up to 12 weeks of expanded FMLA for parents who had to take time off due to school closures. Many employers had employees taking leave in the Spring of 2020 when schools closed due to the pandemic, and again in the Fall of 2020 when schools re-opened and positive test results increased. Again, these mandatory paid leave provisions terminated on December 31, 2020.
[2] Special Issues for Employers: Taxation and Deductibility of Tax Credits | Internal Revenue Service (irs.gov)
