Determining the Amount of the Tax Credit for Qualified Family Leave Wages

 

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.

The Family and Medical Leave Act (FMLA) generally entitles eligible employees of covered employers to unpaid, job-protected leave for specified family and medical reasons.  For periods of leave between April 1, 2020 and December 31, 2020, the FFCRA amended the FMLA (these FAQs refer this portion of the FFCRA as “the Expanded FMLA”) to require an Eligible Employer to provide qualified family leave wages when an employee is unable to work or telework due to a need for leave to care for a child of the employee if the child’s school or place of care has been closed, or because the child care provider of the child is unavailable, for reasons related to COVID-19.  For periods of leave between January 1, 2021 and March 31, 2021, Eligible Employers may voluntarily provide this leave.

For more information, see the Department of Labor's Families First Coronavirus Response Act: Questions and Answers. 

25. What is included in “qualified family leave wages”?  (Updated January 28, 2021)

Qualified family leave wages are 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) and compensation (as defined in section 3231(e) of the Code, determined without regard to the exclusions under section 3231(e)(1) of the Code, and without regard to section 7005(a) of the FFCRA) that Eligible Employers pay eligible employees for periods of leave during which they are unable to work or telework due to a need for leave to care for a child of such employee if the child’s school or place of care has been closed (including the closure of a summer camp, summer enrichment program, or other summer program), or because the child care provider of the child is unavailable, for reasons related to COVID-19.  The first ten days for which an employee takes leave for this reason may be unpaid.  However, during that 10-day period, an employee may receive qualified sick leave wages as provided under the EPSLA or may receive other forms of paid leave, such as accrued sick leave, annual leave, or other paid time off under the Eligible Employer’s policy.  After an employee takes leave for ten days, the Eligible Employer provides the employee with qualified family leave wages for up to ten weeks.

For more information, see the Department of Labor's Families First Coronavirus Response Act: Questions and Answers.

25a. Do “qualified family leave wages” include taxes imposed or withheld from the wages? (Updated January 28, 2021)

Qualified family leave wages for purposes of the credit are calculated without regard to federal taxes imposed on or withheld from the wages, including the employee’s share of social security taxes, the employee’s and Eligible Employer’s shares of Medicare tax, and federal income taxes required to be withheld. 

Note: The FFCRA exempts qualified family leave wages from the Eligible Employer’s share of social security tax.

26. How much credit may an Eligible Employer receive for qualified family leave wages?

An Eligible Employer may claim a fully refundable tax credit equal to 100 percent of the qualified family leave wages (and allocable qualified health plan expenses and the Eligible Employer’s share of Medicare tax on the qualified family leave wages) it pays.

For more information about how to determine the amount of family leave wages for which an Eligible Employer may receive credit, see"How does an Eligible Employer determine the amounts of the qualified family leave wages it is required to pay?"

27. How does an Eligible Employer determine the amounts of the qualified family leave wages to pay? (Updated January 28, 2021)

Under the Expanded FMLA, the Eligible Employer pays the employee qualified family leave wages in an amount equal to at least two-thirds of the employee’s regular rate of pay, multiplied by the number of hours the employee otherwise would have been scheduled to work, not to exceed $200 per day and $10,000 in the aggregate for the calendar year.

28. What is the rate of pay for qualified family leave wages? (Updated January 28, 2021)

An Eligible Employer pays qualified family leave wages for up to ten weeks at a rate that is 2/3 of the employee’s regular rate of pay (not to exceed $200 per day) (as determined under section 7(e) of the Fair Labor Standards Act of 1938).

29. Are amounts other than qualified family leave wages included in the tax credit for required paid family leave? (Updated January 28, 2021)

Yes.  The credit also includes the allocable qualified health expenses and the amount of the Eligible Employer’s share of Medicare tax imposed on the qualified family leave wages.  

Note: The amount of the Eligible Employer’s share of Medicare tax is based only on the qualified family leave wages, not on the any qualified health plan expenses allocable to those wages. The qualified sick leave wages are not subject to the employer’s share of social security tax.

For more information about the additions to the tax credit for allocable qualified health plan expenses, see  "Determining the Amount of Allocable Qualified Health Plan Expenses." For more information about determining the Eligible Employer’s share of Medicare tax, see "What is the Eligible Employer’s share of Medicare tax on qualified leave wages?"

30. Is a similar tax credit available to self-employed individuals? (Updated January 28, 2021)

Yes. The FFCRA also provides a comparable credit for self-employed individuals carrying on any trade or business within the meaning of section 1402 of the Internal Revenue Code if the self-employed individual would be eligible to receive paid leave under the Expanded FMLA if the individual were an employee of an employer (other than him or herself).

For more information, "Specific Provisions Related to Self-Employed Individuals."