The ERTC allows you to claim credit for certain qualified employee wages in 2020 and 2021. When calculating qualified wages, you must ensure the employees you claim credit for meet certain eligibility criteria.
For example, you may wonder: Can you claim the ERTC for wages paid to employees on leave because of COVID-19 infection? The short answer is probably not, but you may qualify for another tax credit that does cover this scenario. Read ahead for more information about the ERTC and sick leave.
Does the ERTC Cover Sick Leave Wages?
Under the CARES Act of 2020, the ERTC can provide credit for certain wages you paid to full-time employees during 2020 and 2021. The method you use to calculate qualified wages depends on the size of your business.
Your business is classified as “small” under the ERTC if you had 100 or fewer employees in 2020 or 500 or fewer in 2021. Meanwhile, you would be a large business if your employee count exceeded these figures for either year.
Small businesses can use all employee wages in their calculations except for paid sick leave and family leave under the FCCRA. Large businesses can only claim the wages they paid to employees who were not providing services at the time, and this doesn’t encompass any wages paid for vacation or sick days.
You cannot claim the ERTC for sick leave wages because there is another tax credit you can claim instead under the Family First Coronavirus Response Act, so it’s important to know the difference between the two.
ERTC vs. Paid Leave Credits
While you may not be able to claim the ERTC for wages paid to employees while on sick leave, you could qualify for another tax credit that covers this scenario.
The American Rescue Plan Act of 2021 (ARP), which extends parts of the FFCRA, enables owners of small and midsized businesses to claim refundable tax credits for wages paid to employees for qualified sick and family leave due to COVID-19. These credits would also cover leave taken by employees to receive and recover from the COVID-19 vaccine.
These paid leave credits are tax credits against your share of an employee’s Medicare tax. Like the ERTC, these credits are refundable, meaning you’re entitled to the full amount even if they exceed your Medicare tax liability.
For instances in which you paid sick leave wages to an employee, you may be eligible for 100 percent of the employee’s regular rate of pay for up to two weeks (80 hours). The credit caps at $511 per day and $5,110 aggregate per employee.
Meanwhile, for instances in which you paid family leave wages, you may be eligible for two-thirds of the employee’s regular rate of pay for up to twelve weeks, capping at $200 per day and $12,000 in aggregate.
This credit is only applicable for leave taken between April 1, 2021, and September 30, 2021. You can apply for the credit for both part-time and full-time employees; for part-time employees, calculate the number of hours the employee worked on average in a two-week period to determine their wages.
Seek Guidance for the ERTC and Paid Leave Credits
Do you need help applying for the employee retention credit or seeking paid leave credits for emergency paid sick leave? Our tax attorneys at Dayes Law Firm can walk you through the process and even fill out your tax forms on your behalf. Call 866-567-4510 for more information regarding the ERTC and sick leave.