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What You Need to Know About the FFCRA Tax Credit: An Expert’s Guide

The Families First Coronavirus Response Act (FFCRA) tax credit was a lifeline for many employers during the height of the COVID-19 pandemic. Put simply, it was a refundable tax credit designed to reimburse eligible employers for the costs of providing paid sick leave and expanded family and medical leave to employees unable to work or telework due to specific COVID-19 related reasons. Though the mandatory leave requirements have expired, understanding the FFCRA and its tax credit remains crucial, especially for those still processing prior year claims or navigating potential audits.

Understanding the FFCRA Tax Credit in Detail

The FFCRA, enacted in March 2020, mandated that certain employers provide paid leave to employees affected by the pandemic. To offset the financial burden on these employers, the legislation included provisions for a fully refundable tax credit.

This refundable credit meant that employers could reduce their employment tax deposits (including Social Security, Medicare, and federal income tax) by the amount of the qualified leave wages and related health plan expenses. If the credit exceeded the employer’s total employment tax liabilities, the employer could request a refund from the IRS.

Key Components of the FFCRA Tax Credit

The FFCRA tax credit encompassed two main types of leave:

Emergency Paid Sick Leave (EPSL): This provided up to two weeks (80 hours) of paid sick leave at the employee’s regular rate of pay (up to $511 per day) if the employee was unable to work or telework because they were:
- Subject to a federal, state, or local quarantine or isolation order related to COVID-19.
- Advised by a healthcare provider to self-quarantine due to concerns related to COVID-19.
- Experiencing symptoms of COVID-19 and seeking a medical diagnosis.
- Caring for an individual subject to a quarantine or isolation order or advised to self-quarantine.
- Caring for a child whose school or place of care was closed, or childcare provider was unavailable, due to COVID-19.
For employees taking EPSL to care for others or due to school/childcare closures, the paid sick leave was capped at two-thirds of the employee’s regular rate of pay, up to $200 per day.
Emergency Family and Medical Leave Expansion Act (EFMLEA): This expanded the existing Family and Medical Leave Act (FMLA) to provide up to 12 weeks of leave (with the first two weeks unpaid) for employees unable to work or telework because they needed to care for a child whose school or place of care was closed, or childcare provider was unavailable, due to COVID-19. The paid leave was capped at two-thirds of the employee’s regular rate of pay, up to $200 per day, for a maximum of $12,000 per employee.

Calculating the FFCRA Tax Credit

The FFCRA tax credit calculation involved several components:

Qualified Leave Wages: This included the wages paid to employees for EPSL and EFMLEA, subject to the daily and aggregate caps.
Qualified Health Plan Expenses: This covered the employer’s share of health plan expenses allocable to the qualified leave wages.
Employer’s Share of Medicare Tax: This included the employer’s share of Medicare tax imposed on the qualified leave wages.
Qualified Sick Leave Wages for Self-Employed Individuals: Self-employed individuals could claim a similar credit based on their self-employment income.

The sum of these components represented the total FFCRA tax credit.

Important Dates and Deadlines

The FFCRA’s mandatory leave provisions applied from April 1, 2020, through December 31, 2020. While the mandatory leave requirement expired, the tax credits were extended through September 30, 2021, for employers who voluntarily continued to offer qualifying leave.

The deadline to claim the FFCRA tax credit generally aligns with the statute of limitations for filing amended payroll tax returns, typically three years from the date the original return was filed or two years from the date the tax was paid, whichever is later.

FFCRA Tax Credit: Frequently Asked Questions (FAQs)

Here are answers to some common questions about the FFCRA tax credit:

FAQ 1: Who was eligible for the FFCRA tax credit?

Eligible employers included businesses and tax-exempt organizations with fewer than 500 employees. Certain governmental employers were also eligible.

FAQ 2: What documentation was required to claim the FFCRA tax credit?

Employers were required to maintain detailed records substantiating the leave taken by employees, including:

Employee requests for leave.
Documentation supporting the reason for leave (e.g., quarantine order, doctor’s recommendation, notice of school closure).
Records of wages paid for leave.
Records of health plan expenses.
Completed IRS Forms 7200 (Advance Payment of Employer Credits Due to COVID-19) and 941 (Employer’s Quarterly Federal Tax Return).

FAQ 3: How did employers claim the FFCRA tax credit?

Employers claimed the credit on their quarterly payroll tax returns (Form 941). They reported the total qualified leave wages and related expenses, which reduced their overall tax liability. If the credit exceeded their tax liability, they could request a refund using Form 7200.

FAQ 4: Could employers claim both the FFCRA tax credit and the Employee Retention Credit (ERC)?

Generally, no. Employers could not claim both the FFCRA tax credit and the ERC for the same wages. This meant carefully coordinating these credits to maximize benefits while avoiding double-dipping.

FAQ 5: What constituted “qualified health plan expenses” for the FFCRA tax credit?

Qualified health plan expenses included the employer’s share of the cost of maintaining a group health plan, allocable to the wages paid for qualified leave. This could include premiums for medical, dental, and vision coverage.

FAQ 6: How were qualified health plan expenses allocated to qualified leave wages?

The IRS provided guidance on allocating health plan expenses, generally suggesting a pro rata allocation based on the proportion of qualified leave wages to total wages paid to employees covered by the health plan.

FAQ 7: What if an employer incorrectly claimed the FFCRA tax credit?

If an employer incorrectly claimed the FFCRA tax credit, they were required to amend their payroll tax returns (Form 941-X) to correct the error. They may also be subject to penalties and interest.

FAQ 8: Were self-employed individuals eligible for a similar tax credit?

Yes. Self-employed individuals who were unable to work due to reasons related to COVID-19 could claim a credit against their self-employment tax liability, calculated based on their average daily self-employment income.

FAQ 9: How did the Consolidated Appropriations Act, 2021, affect the FFCRA tax credit?

The Consolidated Appropriations Act extended the availability of the FFCRA tax credits for employers who voluntarily provided qualifying leave through March 31, 2021. It also clarified certain aspects of the credit calculation.

FAQ 10: How did the American Rescue Plan Act of 2021 affect the FFCRA tax credit?

The American Rescue Plan Act further extended the availability of the FFCRA tax credits for employers who voluntarily provided qualifying leave through September 30, 2021. It also expanded the reasons for which leave could be taken and increased the amount of wages that could be considered for the credit in some circumstances.

FAQ 11: What happens if the IRS audits an FFCRA tax credit claim?

If the IRS audits an FFCRA tax credit claim, the employer must be prepared to provide detailed documentation to support their claim, including proof of eligibility, employee leave requests, wage records, and health plan expense information. It’s crucial to have meticulous records to withstand scrutiny.

FAQ 12: Is it still possible to claim the FFCRA tax credit?

While the mandatory leave requirement has expired, and the credit’s availability period has ended, it may still be possible to amend prior year payroll tax returns to claim the credit if you were eligible and did not initially claim it. However, you must do so before the statute of limitations expires. Consult with a tax professional to determine your eligibility and navigate the amendment process.

Disclaimer: This information is for general guidance only and does not constitute professional tax advice. Consult with a qualified tax advisor for personalized advice.