COVID-19 Related Tax Credits: What is an Eligible Employer FAQs

 

Note that the American Rescue Plan Act of 2021, enacted March 11, 2021, amended and extended the tax credits (and the availability of advance payments of the tax credits) for paid sick and family leave for wages paid with respect to the period beginning April 1, 2021, and ending on September 30, 2021. These FAQs do not currently reflect the changes made by the American Rescue Plan Act; however, please continue to check IRS.gov for any updates related to the change in law.

What is an Eligible Employer?

19a. If an Eligible Employer that employs a health care provider or an emergency responder excludes the employee from eligibility for paid sick leave or family leave for one or more reasons but not for other reasons, may the Eligible Employer claim the credit for paid leave it provides to the employee for any “non-excluded” reason? (Updated January 28, 2021)

Yes.  For periods of leave between April 1, 2020 and December 31, 2020, the FFCRA provides that Eligible Employers may exclude employees who are health care providers or emergency responders from the paid sick leave and expanded family and medical leave requirements.  (For periods of leave between January 1, 2021 and March 31, 2021, although credit may be claimed for paid leave that would have met the requirements of the EPSLA or Expanded FMLA, there is no requirement to provide paid leave.)  Regulations issued by the Department of Labor Wage and Hour Division define which employees are considered health care providers and emergency responders for this purpose.  The preamble to the Department of Labor regulations explains that, because an employer is not required to exclude these employees from eligibility, if an employer does not elect to exclude a health care provider or emergency responder from taking paid leave under the EPSLA or Expanded FMLA for a reason related to COVID-19, it is subject to all other requirements of the FFCRA.  For example, if an Eligible Employer excludes an employee who is a health care provider from taking paid sick leave to care for an individual family member, but does not exclude the employee from taking paid sick leave for reasons relating to the employee’s own health status, the Eligible Employer is required to provide the employee with paid sick leave if the employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19 or is experiencing symptoms of COVID-19 and is seeking a medical diagnosis.  In this case, the Eligible Employer may claim the credit for any such qualified sick leave wages it pays to the employee, as well as the credit for allocable qualified health plan expenses and the Eligible Employer’s share of Medicare tax on those qualified sick leave wages.  

For information on who is a health care provider and emergency responder, see “Who is a ‘health care provider’ who may be excluded by their employer from paid sick leave and/or expanded family and medical leave?”, at the Department of Labor’s website. 

19b. Can government employers receive tax credits for providing paid leave wages under the FFCRA? (Updated January 28, 2021)

No.  The Federal government, the governments of any State or political subdivision thereof, and any agencies or instrumentalities of those governments are not Eligible Employers and are not entitled to receive tax credits for providing paid leave wages under the EPSLA or Expanded FMLA.  

However, for periods of leave between April 1, 2020 and December 31, 2020, under the Department of Labor (DOL) rules, non-federal public sector employers generally must provide paid sick and family leave wages under the EPSLA and Expanded FMLA, respectively, while federal public sector employers generally must provide paid sick leave wages under the EPSLA.  (The requirement to provide paid leave  under the EPSLA or Expanded FMLA for periods after December 31, 2020, was not extended by the COVID-related Tax Relief Act of 2020.)  For more information on whether and to what extent public sector employers must provide paid leave wages under the EPSLA or Expanded FMLA, Families First Coronavirus Response Act: Questions and Answers, available at the DOL’s website.

Note: To the extent that public sector employers provide paid leave wages under the EPSLA or Expanded FMLA, under section 7005(a) of the FFCRA, the paid leave wages are not subject to the employer’s share of social security tax.

19c. What organizations are considered an “instrumentality” of the Federal government, or of a State or local government, for purposes of determining if an employer is not eligible for the FFCRA leave credits? (Added November 25, 2020)

In general, for employment tax purposes, the IRS considers six factors in determining whether an organization is an instrumentality.  The six factors that are used to determine whether an organization is an instrumentality are:

  1. whether the organization is used for a governmental purpose and performs a governmental function;
  2. whether performance of the organization’s function is on behalf of one or more states or political subdivisions;
  3. whether there are any private interests involved, or whether the states or political subdivisions involved have the powers and interests of an owner;
  4. whether control and supervision of the organization is vested in public authority or authorities;
  5. if express or implied statutory or other authority is necessary for the creation and/or use of such an instrumentality, and whether such authority exists; and
  6. the degree of financial autonomy and the source of its operating expenses.

See Rev. Rul. 57-128, 1957-1 C.B. 311.  No one factor is determinative; instrumentality status is based on all the facts and circumstances.  For purposes of determining whether an employer is eligible for the FFCRA leave credits, these same factors apply to identify an instrumentality of the Federal government, or of a State or local government.

19d. Are employers in U.S. Territories eligible for the tax credits? (Added November 25, 2020)

Yes.  Employers in U.S. Territories are eligible to claim the tax credits for qualified leave wages, assuming they are otherwise Eligible Employers.  Sections 7001(c) and 7003(c) of the FFCRA provide that qualified sick leave wages and qualified family leave wages, respectively, are wages as defined in section 3121(a) of the Internal Revenue Code (the Internal Revenue Code (the “Code”)) for purposes of the Federal Insurance Contributions Act (“FICA”) tax.  Under section 3121(b), payments of wages by employers in U.S. territories are subject to FICA. 

For more information on defining an Eligible Employer, see “What employers may claim the tax credits?

19e. Are household employers eligible for the tax credits?  (Updated January 28, 2021)

Yes. Assuming a household employer is otherwise an Eligible Employer, the employer may claim tax credits for providing paid leave under the FFCRA if the leave is both (1) paid under the EPSLA or Expanded FMLA, and (2) wages (as defined in section 3121(a) of the Internal Revenue Code (the “Code”)) or compensation (as defined in section 3231(e) of the Code).  

Whether a household employer provides paid leave to a household worker under the EPSLA or Expanded FMLA depends on whether the household employer is an employer under the Fair Labor Standards Act (FLSA).  In general, a household employer is considered to be the employer of the household worker under the FLSA if the household worker is “economically dependent” on the household employer for the opportunity to work.  For more information on how the DOL classifies household workers, see FAQ 89 (“I hire workers to perform certain domestic tasks, such as landscaping, cleaning, and child care, at my home. Do I have to provide my domestic service workers paid sick leave or expanded family and medical leave?”) of the DOL’s Families First Coronavirus Response Act: Questions and Answers.

Note: The EPSLA and Expanded FMLA only require employers to provide paid sick and family leave, respectively, to employees unable to work or telework for periods after March 31, 2020, and before January 1, 2021. Under the COVID-related Tax Relief Act of 2020, employers are not required to provide paid sick and family leave to employees after December 31, 2020; however, Eligible Employers that voluntarily provide paid sick or family leave that would have met the requirements of the EPSLA or Expanded FMLA to employees may claim the tax credits for providing the qualified leave wages through March 31, 2021.  

19f. Can employers claim the tax credit for amounts paid to H-2A visa holders?  (Updated January 28, 2021)

Yes.  The FFCRA sections 7001(c) and 7003(c) define “qualified leave wages” for purposes of the EPSLA and the Expanded FMLA, respectively, as wages as defined in section 3121(a) of the Internal Revenue Code (the “Code”), determined without regard to section 3121(b)(1)-(22) of the Code (and section 7005(a) of the FFCRA).  Therefore, although section 3121(b)(1) of the Code excludes from “employment” services performed by H-2A workers, employers are entitled to tax credits under the FFCRA for qualified leave wages paid to H-2A workers.

19g. Are tribal governments eligible for the tax credits? (Added November 25, 2020)

Yes.  Tribal governments that provide paid sick and paid family and medical leave pursuant to the FFCRA are eligible to claim the tax credits for qualified leave wages, assuming they are otherwise Eligible Employers.