Can You Claim the ERTC for Employees on Sick or Family Leave?

September 12, 2023
Dayes Law Firm

Everyone agrees that a priority during the height of the pandemic was taking care of your loved ones. As COVID-19 worsened, more employees went on sick or family leave to recover and avoid spreading the virus. 

With this decrease in staff and customers, businesses struggled throughout 2021 and 2022. The government introduced the ERTC to provide relief. However, as an employer, you may wonder what wages you can claim. For example, what about ERTC and sick leave?

What Is the Employee Retention Credit?

In 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act introduced the Employee Retention Credit (ERC), a.k.a. the Employee Retention Tax Credit (ERTC). This credit incentivized employers to retain employees by providing a refund for a percentage of taxable employee wages. 

If you’re an eligible employer, you may file for the ERTC for employee wages you paid in 2021 and 2022. To be eligible, your business must have experienced either a significant decrease in revenue or suspended regular operations in response to a local quarantine or isolation order.

For 2020, your business must have suffered a 50% loss in revenue when comparing the corresponding quarters to 2019. For 2021 claims, your business had to see a 20% loss in revenue compared to 2019.

Qualified Wages for the ERC

Once you know your business qualifies for the ERC, you must determine which employee wages you can claim. For wages to qualify, you must have paid them in 2020 or 2021. If you paid your employees’ regular rate of pay, that’s the rate you can use. 

For 2020, the ERC will cover up to 50% of $10,000 per employee per quarter. For 2021, the ERC will cover up to 70% of $10,000 per employee for that year’s first three quarters. The ERC covers costs associated with health insurance in addition to standard wages.

While these are the basic criteria for qualified wages, there are a few exemptions to note. 

Sick and Family Leave Wages

The Families First Coronavirus Response Act (FFCRA) protected employee rights by requiring some employers to provide emergency paid sick leave.

This expanded to the employees’ families as well, requiring some employers to provide leave for employees’ families who caught COVID-19. This act assisted sick employees while preventing the further spread of the virus. 

So, what does this mean for the ERTC and sick leave?

Unfortunately, wages paid while an employee was on sick or family leave are not qualified wages under the ERC. The same applies to:

  • Severance pay
  • Payment for former employees
  • Paid time off (PTO) wages
  • Wages already covered by PPP loans

Claiming ERTC Without Sick and Family Leave Wages

Although you can’t claim any wages paid while an employee was on sick or family leave, you can still claim qualified wages. Although the ERTC covers wages paid in 2020 and 2021, you can retroactively file for the credit through April 2024 for 2020 wages and April 2025 for 2021 wages. 

When you’re claiming wages for the ERTC, simply deduct any wages you paid for employees on sick or family leave. Ensure you only include qualified wages in your claim. 

Still Need To File For the ERTC? Contact Dayes Law Firm

You cannot receive a tax credit for paid sick leave wages, but it isn’t too late to claim other wages. Now that you understand the importance of ERTC and sick leave, you can move forward with your claim with a better understanding of qualified wages.

This process can still prove to be difficult. To ensure the process goes smoothly, contact Dayes Law Firm. Our dedicated team has represented clients who have received over $100 million in tax credits, and we want to help you next. 

Call 866-567-4510 for a free consultation.