State and Local Public Employers Eligible for EPSL and EFMLA Tax Credits

On March 11, President Biden signed the American Rescue Plan Act (“ARPA”) into law. Under the ARPA, state and local government employers are eligible for tax credits for social security and Medicare tax payments if they voluntarily extend Emergency Paid Sick Leave (“EPSL”) and Emergency Family and Medical Leave (“EFMLA”) through Sept. 30.

Previously, state and local government employers were not eligible for these tax credits. Now, state and local public employers can apply the wages paid for EPSL and the EFMLA as a credit against their employer contributions for social security and Medicare taxes (“FICA taxes”). These credits must be applied to leave taken after April 1 and before Sept. 30.

Under the ARPA, agencies or instrumentalities of the United States Government are not able to receive tax credits for EPSL and EFMLA payments. However, a state or local government is not an agency nor instrumentality of the United States Government. Rather, they are political subdivisions of their particular state. Previously, the Families First Coronavirus Response Act (“FFCRA”) stated, “this credit shall not apply to the Government of the United States, the government of any State or political subdivision thereof, or any agency or instrumentality of any of the foregoing.” By the plain language, local public employers are not precluded from using tax credits.

If you have any questions about these changes, please contact Jay Fleming or any other member of Clark Hill’s Education and Municipal Group.