Major FFCRA Updates — Tax Credits and Mandatory Leave

On December 27, 2020, the newest COVID-19 stimulus bill was signed into law, providing a sweep of changes to several regulations enacted by the first stimulus package. When the COVID-19 pandemic was first unfolding in March, government officials responded by passing the Families First Coronavirus Response Act (FFCRA). The Act detailed various provisions, including emergency paid sick leave, family and medical leave, and tax credits for employers that provide the paid leave benefits made mandatory by the Act.

The Emergency Family and Medical Leave Expansion Act (EFMLA) and the Emergency Paid Sick Leave Act (EPSLA) were passed as part of FFCRA. FFCRA also created tax credits for employers to cover certain costs of the employee leave required by the law: employee wages, health plan expenses allocable to those wages, and the employer’s portion of the Medicare tax related to the wages.

The federal mandate for employers to provide FFCRA leave expired on December 31, 2020, however, the new stimulus package does extend the ability to continue offering these leaves on a voluntary basis at the employer’s discretion. Meaning, as of January 1, 2021, employers are no longer required to provide employee paid sick leave and expanded family and medical leave.

If an employer elects to continue offering FFCRA leave, this would entitle the employer to continue claiming the associated employer tax credits for substantiated employee leave required by FFCRA. These credits will continue to be available through March 31, 2021. Notably, the stimulus package does not provide any additional allotments of time for employees. Employees will only have access to any balance of FFCRA leave allowance that was unused in 2020.

The new stimulus package did not extend the leave mandates. Meaning, as of December 31, 2020, employers are no longer required to provide employee paid sick leave and expanded family and medical leave. The bill does, however, extend the associated employer tax credits for employee leave required by FFCRA. These credits will continue to be available through March 31, 2021.

With the leave mandate expired, employers may choose to continue to offer FFCRA leave through March and can take advantage of the associated tax credits. Employees with unused FFCRA leave can opt to roll that balance into 2021 until March as well. Employers choosing to discontinue FFCRA leave should be prepared to communicate this change to employees.

On December 27, 2020, President Trump signed the Consolidated Appropriations Act of 2021 into law. The Act provides temporary special rules for health and dependent care flexible spending accounts (FSAs) that give employees additional time to use these funds.

Many people found themselves saving on health-related or dependent care expenses in the wake of lockdowns and other advisories. For plan years ending in 2020 and 2021, the Act allows employers to:

• Permit employees to carry over unused amounts remaining in these FSAs to the next plan year.
• Extend the grace period to 12 months after the end of such plan year.
• Permit employees who cease plan participation during 2020 or 2021 to continue to receive reimbursements from unused amounts through the end of the plan year in which their participation ended.

The Act also includes a special carry forward rule for dependent care FSAs where the dependent aged out during the pandemic. To determine dependent care assistance that may be paid or reimbursed, the maximum age is increased from 13 to 14 years of age.

Additionally, employees may elect to prospectively modify the amount of their FSA contributions for plan years ending in 2021, even if they have not experienced a change in status. The applicable dollar limitations, however, will continue to apply.