Tax Credits for Paid Leave Under the American Rescue Plan Act of 2021: Special Issues for Employers — Interaction of the American Rescue Plan Act of 2021 Tax Credits with Other Tax Credits

 

Note: These FAQs address the tax credits available under the American Rescue Plan Act of 2021 (the "ARP") by employers with fewer than 500 employees and certain governmental employers without regard to the number of employees ("Eligible Employers") for qualified sick and family leave wages ("qualified leave wages") paid with respect to leave taken by employees beginning on April 1, 2021, through September 30, 2021, as well as the equivalent credits available for certain self-employed individuals. For information about the tax credits that may be claimed for qualified leave wages paid with respect to leave taken by employees prior to April 1, 2021, under the Families First Coronavirus Response Act ("FFCRA") and the COVID-related Tax Relief Act (the "Relief Act"), see Tax Credits for Paid Leave Under the Families First Coronavirus Response Act for Leave Prior to April 1, 2021 FAQs.

Although the requirement that Eligible Employers provide leave under the Emergency Paid Sick Leave Act ("EPSLA") and Emergency Family and Medical Leave Expansion Act ("Expanded FMLA") under the FFCRA does not apply after December 31, 2020, the tax credits under sections 3131 through 3133 of the Internal Revenue Code ("the Code") are available for qualified leave wages an Eligible Employer provides with respect to leave taken by employees beginning on April 1, 2021, through September 30, 2021, if the leave would have satisfied the requirements of the EPSLA and Expanded FMLA, as amended for purposes of the ARP.

Throughout these FAQs, the use of the word "work," unless otherwise noted, is inclusive of telework.

76. May an Eligible Employer receive both the tax credits for qualified leave wages under sections 3131 and 3132 of the Code and the employee retention credit under the CARES Act, or under section 3134 of the Code? (added June 11, 2021)

Yes, but the Eligible Employer may not benefit from both paid leave tax credits and the employee retention tax credits with respect to the same wages.

For the second quarter of 2021, to the extent an Eligible Employer receives the employee retention credit under section 2301 of the CARES Act on the same wages that are qualified leave wages for purposes of sections 3131 and 3132 of the Code, the Eligible Employer must reduce the tax credit for qualified leave wages by the portion of the credit allowed under section 2301 of the CARES Act which is attributable to the same wages.

For the third quarter of 2021, any qualified leave wages Eligible Employers take into account for purposes of the paid leave credits under sections 3131 and 3132 of the Code may not be taken into account for purposes of the employee retention credit under section 3134 of the Code.

For guidance on the employee retention credit as it applies to qualified wages paid after March 12, 2020, and before January 1, 2021, see Notice 2021-20 PDF. For guidance on the employee retention credit as it applies to qualified wages paid after December 31, 2020 and before July 1, 2021, see Notice 2021-23 PDF. Additional guidance will be issued on the employee retention credit as it applies to qualified wages paid after June 30, 2021, and before January 1, 2021.

77. May an Eligible Employer receive both the tax credits for qualified leave wages under sections 3131 and 3132 of the Code and the tax credits under sections 45A, 45P, 45S, and 51 of the Code? (added June 11, 2021)

Yes, but not for the same wages. That is, for purposes of determining the tax credits for qualified leave wages under sections 3131 and 3132 of the Code an Eligible Employer may not take into account any wages taken into account under sections 45A (Indian Employment Credit), 45P (Employer Wage Credit For Employees Who Are Active Duty Members Of The Uniformed Services), 45S (Employer Credit For Paid Family And Medical Leave), or 51 (Work Opportunity Credit) of the Code.

78. May an Eligible Employer receive both the tax credits for qualified leave wages under sections 3131 and 3132 of the Code and the Credit for Increasing Research Activities under section 41 of the Code? (added June 11, 2021)

Yes, but the tax credits for qualified leave wages under sections 3131 and 3132 of the Code are reduced by the amount of the tax credit allowed under section 41 of the Code with respect to wages taken into account for determining the credit under section 41 of the Code and the qualified leave wages.

79. May an Eligible Employer receive both the tax credits for qualified leave wages under sections 3131 and 3132 of the Code and forgiveness for a loan under the Paycheck Protection Program? (added June 11, 2021)

Yes, but not for the same wages. That is, an Eligible Employer may not receive tax credits for wages that are taken into account as payroll costs in connection with obtaining forgiveness of the Paycheck Protection Program loan ("PPP loan"). However, to the extent any qualified leave wages are payroll costs under a PPP loan that is not forgiven under either section 7(a)(37)(J) or section 7A of the Small Business Act, an Eligible Employer may claim the tax credits under sections 3131 or 3132 of the Code for the wages.

For more information on the PPP loan, see Paycheck Protection Program.

80. May an Eligible Employer receive both the tax credits for qualified leave wages under sections 3131 and 3132 of the Code and a grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act? (added June 11, 2021)

Yes, but not for the same wages. That is, an Eligible Employer may not claim the tax credits for qualified leave wages under sections 3131 and 3132 of the Code for wages taken into account as payroll costs in connection with a grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act.

81. May an employer receive both the tax credits for qualified leave wages under sections 3131 and 3132 of the Code and a restaurant revitalization grant under section 5003 of the ARP? (added June 11, 2021)

Yes, but not for the same wages. That is, an employer may not claim the tax credits for qualified leave wages under sections 3131 and 3132 of the Code for wages taken into account as payroll costs in connection with a restaurant revitalization grant under section 5003 of the ARP.

82. May an Eligible Employer receive tax credits under the ARP for paid sick or paid family leave provided pursuant to a federal, state, or local law? (added June 11, 2021)

Yes, provided that the leave would have satisfied the requirements of the EPSLA or Expanded FMLA, as amended for purposes of the ARP. That is, sections 3131(c) and 3132(c) of the Code define "qualified sick leave wages" and "qualified family leave wages" as wages paid by an Eligible Employer that would have satisfied the requirements of the EPSLA, or Expanded FMLA, as amended by the ARP, as if the Acts applied after March 31, 2021. Therefore, if an Eligible Employer pays wages mandated by a federal, state, or local law for leave that otherwise satisfies the requirements of the EPSLA or Expanded FMLA, as amended for purposes of the ARP, the Eligible Employer is entitled to claim tax credits under the ARP for those wages.

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