IRS Issues FAQs to Help Employers Comply with the American Rescue Plan Act

The American Rescue Plan Act makes tax credits available to qualifying employers in 2021. These credits are similar to those that were previously available under the Families First Coronavirus Response Act (FFCRA), which phased out on December 31, 2020. When claiming credits under the American Rescue Plan Act, employers must be careful to ensure statutory compliance, as improperly claiming credits under the Act could lead to enforcement action by the Internal Revenue Service (IRS). In this article, New Jersey business tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, provides an overview of some of the key issues covered in the IRS’ recently-issued FAQs.

What Employers Qualify for Tax Credits Under the American Rescue Plan Act?

The American Rescue Plan Act applies to employers with fewer than 500 employees. An employer meets this requirement if, “at the time its employee's leave is to be taken, it employs fewer than 500 full-time and part-time employees within the United States.”

When Can Eligible Employers Claim Tax Credits Under the American Rescue Plan Act?

Employers can claim tax credits under the American Rescue Plan Act for wages paid to employees who take leave from April 1, 2021, through September 30, 2021. In order to qualify, the employee’s leave must satisfy the requirements of the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical Leave Expansion Act (the “Expanded FMLA”). The September 30 end date applies to the date that an employee takes leave, not the date that an employer pays qualified leave wages (which may be later).

Do Employers Need to Claim Tax Credits Received Under the American Rescue Plan Act as Income on Their 2021 Returns?

Yes, the IRS states that employers, “must include the full amount of the credits received for qualified leave wages . . . in gross income.” Wages paid to employees who take qualified leave are deductible (“Generally, an Eligible Employer's payments of qualified leave wages . . . are deductible by [an employer] as ordinary and necessary business expenses in the taxable year that these wages are paid or incurred”).

What Do Employers Need to Do to Establish Eligibility for American Rescue Plan Act Tax Credits?

The IRS will be paying close attention to businesses that claim tax credits under the American Rescue Plan Act. As a result, employers that claim these credits must be careful to ensure that they have adequate substantiating documentation. Minimally, the IRS’ FAQs indicate that employers should require employees to submit a written request that includes:

• The employee’s name;
• The date(s) for which the employee is requesting leave;
• A “statement of the COVID-19 related reason the employee is requesting leave and written support for that reason;” and,
• A “statement that the employee is unable to work, including by means of telework, for that reason.”

Contact New Jersey Business Tax Lawyer Kevin E. Thorn

If you have questions or concerns about employment tax credit compliance under the American Rescue Plan Act, Thorn Law Group can help. To schedule an appointment with New Jersey business tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 201-355-8202, email ket@thornlawgroup.com or contact us online today.