On Friday, January 29, 2021, the IRS posted updated FAQs about recent legislation that extended and amended tax relief to certain small- and mid-sized employers under the Families First Coronavirus Response Act (FFCRA). The FAQs are available here.

The FFCRA originally provided qualified small-and mid-sized employers with tax credits for qualified leave wages paid to employees on sick leave or expanded family and medical leave for reasons related to COVID-19 taken for periods from April 1, 2020 through December 31, 2020. The COVID-related Tax Relief Act of 2020 extended the tax credits for leave through March 31, 2021.

Eligible employers may claim credit for paid sick leave provided to an employee for up to two weeks (80 hours) at the employee’s regular rate of pay up to $511 per day and $5110 in total. If the employee received paid sick leave in order to care for someone with coronavirus, the employer may claim credit for up to two weeks (80 hours) at 2/3 the employee’s regular rate of pay, or up to $200 per day and $2,000 in total. More information on qualified sick wages can be found here.

Employers may also claim a tax credit for paid family leave provided to an employee equal to 2/3 of the employee’s regular pay, up to $200 per day and $10,000 in total. Additional information on determining the amount of the tax credit for qualified family leave wages is available here.

The quickest way for employers to claim the credits is by reducing their federal employment tax deposits. If there are insufficient federal employment taxes to cover the amount of credits, the employer may request an advance payment of the credits form the IRS by submitting a Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Employers may also claim the credits on their federal employment tax returns such as Form 941, Employer’s Quarterly Federal Tax Return.