Federal Tax Credits May Be Available for 2021 Colorado Public Health Emergency Leave

By John T. Melcon

On December 23, 2020, the Division of Labor Standards and Statistics in the Colorado Department of Labor and Employment (“CDLE”) announced that all Colorado employers must supply up to 80 hours of Public Health Emergency Paid Sick Leave (“PHE leave”) to employees beginning January 1, 2021, pursuant to the Healthy Families and Workplaces Act (“HFWA”). Read our Advisory about this new guidance here.

Meanwhile, on December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 (“CAA”), a 5,593 page monstrosity that, among other things, extends the employer tax credit for paid sick leave provided under the Families First Coronavirus Response Act (“FFCRA”) through March 31, 2020.

May Colorado employers use this newly extended federal tax credit to help offset the costs of supplying PHE leave under HFWA between January 1 and March 31, 2021?

Potentially, yes.

As originally enacted, the FFCRA required certain employers to supply up to 80 hours of COVID-related paid sick leave for 2020, and established a dollar-for-dollar tax credit for employers to offset the costs of supplying this leave. See our FFCRA Advisory here. Under the FFCRA, this paid sick leave was to expire on December 31, 2020. In the CAA, Congress chose not to extend the FFCRA’s paid sick leave mandate, but instead extended the tax credit as if the mandate had originally lasted through March 31, 2020. As a result, covered employers who allow employees to use some or all of their remaining “balance” of FFCRA paid sick leave during the first quarter of 2021 can obtain a federal tax credit to cover the cost of that leave.

The upshot for Colorado employers is that this newly-extended federal tax credit can potentially be used to offset some of the costs associated with supplying the 2021 PHE leave required under HFWA. For example, if a Colorado employee took 30 hours of FFCRA paid sick leave in 2020 (leaving a “balance” of 50 hours) and then receives—and uses—80 hours of PHE leave in January 2021, the employer can likely claim a federal tax credit for up to 50 of the January 2021 PHE hours (assuming the reason for the leave falls within the parameters of both the FFCRA and HFWA, which, while not identical, substantially overlap).

One important caveat, though, is that employers must be careful to comply with HFWA’s prohibition on requiring “documentation” to take PHE leave while still heeding IRS guidance to substantiate eligibility for the tax credit by receiving written leave requests from employees.

Due to the complexities involved, employers should consult with a member of our Labor & Employment Group for individualized guidance to ensure compliance with HFWA while also maximizing available federal tax credits under the FFCRA, as amended.