Paid sick and family leave credit: What you need to know

1.5 million employers claimed 9.8 billion USD in tax credits in 2020 — at the start of the COVID-19 pandemic — to help with the costs of paid leave. That’s a lot of businesses that would have struggled to stay afloat without tax relief. 

But what exactly did the paid sick and family leave credit schemes cover? Plus, how much have businesses been able to claim since? Can they claim anything now?

Those are all good questions — and we’ve got the answers. 

In this article, we take a look at who was entitled to sick and family leave tax relief, how long they’re allowed to continue claiming it, and how much they’re entitled to.

What was the paid sick and family leave credit? 

The paid sick and family leave credit was part of the COVID-19 relief legislation (known as the CARES Act) in the US. It provided tax relief to employers who paid sick and family leave to their employees due to COVID-19.

The credit was created not only to support employees during the pandemic but also to offset costs for employers. For any sick or family leave paid to employees during parts of the pandemic, employers could claim a tax credit for their business — sometimes covering the full amount.

The scheme offered free COVID testing, 14-day paid leave, and increased funding for food stamps. It came into effect in March 2020 and expired on December 31 of the same year. It was then extended until September 2021.

What was the Families First Corona Response Act (FFCRA)? 

The FFCRA was part of the same COVID relief legislation. It gave emergency paid sick leave and expanded family or medical leave to employees affected by the pandemic.

The FFCRA was split into two provisions. The first was the Emergency Paid Sick Leave Act. This provided employees with up to two weeks (80 hours) of paid sick leave if they were unable to work due to:

• Quarantining

• Experiencing COVID-19 symptoms and seeking a medical diagnosis

This act also covered up to two weeks (80 hours) of paid sick leave at two-thirds of the employee’s pay if they were unable to work because they were caring for: 

• An individual in quarantine

• A child whose school or childcare provider closed due to COVID-19

The second provision was the Emergency Family and Medical Leave Expansion Act. This covered up to an additional 10 weeks of paid leave at two-thirds of the employee’s regular pay. It applied when an employee couldn’t work because they had to care for a child who couldn’t go to school or childcare due to COVID.

The FFCRA was in effect from April 2020 and expired in December of the same year. It was then superseded by amendments made to the American Rescue Plan Act (ARPA), which incorporated some of these regulations until September 2021. 

The ARPA also added the following provisions related to side effects of immunization: 

• COVID-19 vaccinations or sickness related to immunizations 

• COVID-19 testing waiting periods

• Accompanying someone who needs support to get a vaccine 

• Caring for someone recovering from injury, disability, illness, or condition related to the vaccine

Who was eligible for the sick and family leave credit?

Let’s walk through eligibility for the sick and family leave credit.

Employees

All employees (full-time and part-time) were eligible for two weeks of paid sick leave related to COVID-19. However, employees must have been employed for at least 30 days to receive the additional 10 weeks of paid family leave.

Employees must also meet at least one of the following criteria to qualify for sick or family leave: 

• Subjected to federal, state, or local quarantine or isolation

• Advised by a healthcare provider to self-quarantine

• Experiencing symptoms of COVID-19

• Caring for someone who’s quarantining

• Caring for a child who can’t go to school or childcare due to COVID-19

Self-employed individuals

Self-employed people were eligible for income tax credits similar to those of full-time employees. If unable to perform their work because of COVID, they’d qualify for an income tax credit of up to 100% of their average daily self-employment income. Like the employer credits, this credit was limited to 511 USD per day for sick leave or 200 USD for family leave.

The sick leave credit was limited to up to 10 days (a maximum of 5,110 USD), while the family leave credit was limited to up to 50 days (a maximum of 10,000 USD).

Employers

Private businesses with fewer than 500 employees qualified for the FFCRA tax relief scheme. The following types of employees were counted in this situation:

• Full-time staff

• Part-time staff 

• Temporary employees

• Day laborers 

• Employees on leave (but not furloughed)

Independent contractors were excluded when calculating employee numbers.

Small businesses with fewer than 50 employees weren’t eligible for the credit. However, they were exempt in special circumstances. To prove that they required the tax credit, the business would have to show that employee leave relating to COVID-19 would jeopardize the viability of the business. If the state agreed, they could receive up to 100% of employee sick pay.

Can employers include overseas employees in their headcounts? 

Unfortunately, no. Employers can only count employees in the US, which includes any US state, the District of Columbia, or any other US territory or possession. International employees outside of this remit aren’t covered by the tax credit. 

How much can an employer claim with the sick and family leave credit? 

Let’s talk numbers. 

Here are the maximum amounts that employers can claim for sick and family leave under the FFCRA:

For sick leave 

Eligible employers can claim 100% of an employee's sick leave wages, plus allocable health plan expenses and the employer's share of Medicare taxes. 

Full-time employees received up to two weeks (80 hours) of paid sick leave between April 1, 2020, and March 31, 2021. The maximum wage paid for these reasons is 511 USD per day. 

Employers could claim all this back (provided they met the right eligibility requirements), but the rules change slightly for part-time employees. Employers can still claim 100% of their wages, but the amount that’s covered by the FFCRA varies. 

Typically speaking, sick leave for part-time employees is the average number of hours that an employee works over a two-week period. If they work the same number of hours consistently, then great — that’s easy to work out. But if they have variable hours, that’s where things get tricky. 

You have to work out the average number of hours an employee works to figure out how much sick leave they’re entitled to (and how much credit you can claim).

With Remote HR Management, we help you understand sick leave by country to ensure you remain compliant with all legal requirements of global employment.

For family leave 

For family leave, eligible employers can claim 2/3 of a full-time employee’s wages for up to 10 days (80 hours), plus any allocable health plan expenses and the employer's share of Medicare taxes.

Payments cover a maximum of 200 USD for the care of someone else for 10 days (80 hours for a full-time employee). 

So, how and when can employers actually claim this tax relief? Let’s find out.

How can employers claim the sick and family leave credit? 

Employers could claim sick and family leave credits on their federal employment tax returns. For example, on Form 941 of the Employer's Quarterly Federal Tax Return, they could add sick pay details under the new legislation. 

In anticipation of receiving the credits from Form 941, employers could also get quicker access to tax credits by reducing their federal employment tax deposits. This involves requesting an advance payment of credits from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

If you didn’t have enough federal employment tax deposits to cover the sick or family credit, you could request an advance of the credits by completing Form 7200.

Are there any current tax credits that are similar to the paid sick and family leave credit? 

When the pandemic ended, there was no longer any need for sick and family leave tax credits. 

While the US offers a variety of other tax credits for employers (such as the Work Opportunity Tax Credit and the Disabled Access Credit), there’s no direct comparison to the FFCRA sick and family leave credits. 

However, during the height of the pandemic, the American Rescue Plan (ARA) extended some of the provisions from the FFCRA. For instance, it extended the sick and family leave tax credits (and the advance payments of these credits) to September 2021. 

The ARA also extended the availability of the Employee Retention Credit for small businesses until December 2021. This allowed small businesses to offset their payroll taxes by up to 7,000 USD per employee for each financial quarter. That’s up to 28,000 USD per employee. 

The retention credit was available to small businesses that experienced a loss in revenue as a result of COVID.

Sick and family leave credit FAQs

Let’s answer some common questions about sick and family leave credit. 

Are international employees eligible for paid sick leave or family leave credit? 

Unless they were based in the US on a temporary visa, no — they don’t qualify for paid sick or family leave. 

As their employer, you also can’t claim tax credits on any sick pay or family leave costs that you provided. 

Can an employee stay home under the FMLA to avoid getting COVID-19? 

No, the Family and Medical Leave Act (FMLA) only protects employees who are incapacitated by a serious health condition (like COVID) or who need to care for seriously ill family members. 

Leave taken by an employee to avoid exposure to COVID-19 isn’t protected under the FMLA.

Can an employer terminate an employee for having COVID?

No. If unable to work due to a serious health condition (like COVID) and in alignment with the FMLA, the employee is entitled to up to 12 weeks of job-protected, unpaid leave during any 12-month period. 

If you terminate an employee unjustly for having COVID, you can be subject to fines, penalties, or even legal action. 

Is there a tax credit for self-employed individuals affected by COVID? 

Yes, self-employed individuals were eligible for income tax credits similar to those of full- and part-time employees. They qualified for tax credits of up to 100% of their average daily income (limited to a maximum of 511 USD per day).

Manage sick days and family leave with Remote 

The paid sick and family leave credit was incredibly beneficial for businesses during the pandemic. It ensured that employees were covered during a difficult time and offered financial respite for companies that might have struggled to stay afloat.

If you're managing a remote team or thinking about expanding overseas, consider a global HR platform like Remote to seamlessly manage teams all around the world.

To see how Remote can help you manage leaves across the world, chat with us today.