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Credits

  • 758. What credits may be taken against the tax?

    • Editor’s Note: Many of the credits listed below contain sunset provisions so that they apply only so long as Congress chooses to renew them from year to year. Congress historically acts late in the year to extend many credits and extender provisions (see below for more details).

      As of the date of this revision and with respect to provisions that are not permanent, Congress has not indicated whether it will extend various tax credits for future years.[1] Applicable extension periods are noted in the discussion below.

      After rates have been applied to compute the tax, certain payments and credits may be subtracted from the tax to arrive at the amount of tax payable. Refundable credits are recoverable regardless of the amount of the taxpayer’s tax liability for the taxable year. The refundable credits include:

      …Taxes withheld from salaries and wages.[2]

      …Overpayments of tax.[3]

      …The excess of Social Security withheld (two or more employers).[4]

      …The earned income credit.[5]

      … A portion of the child tax credit (Q 760).

      … A portion of the American Opportunity credit.

      …The 72.5 percent health care tax credit for uninsured workers displaced by trade competition.[6]

      …The unused long-term minimum tax credit. The nonrefundable credits are as follows:

      …The personal credits—which consist of the child and dependent care credit (see below);[7] the credit for the elderly and the permanently and totally disabled;[8] the qualified adoption credit;[9] the nonrefundable portion of the child tax credit (see Q 760);[10] the American Opportunity, Hope Scholarship, and Lifetime Learning credits[11] (see Q 761); the credit for elective deferrals and IRA contributions (the “saver’s credit,” which became permanent under PPA 2006);[12]

      …The nonbusiness energy property credit (extended through 2021);[13] and the residential energy efficient property credit.[14]

      …Other nonbusiness credits.[15]

      …The general business credit (see Q 7884) is the sum of the following credits determined for the taxable year: (1) the investment credit determined under IRC Section 46 (see Q 7893) (including the rehabilitation credit; see Q 7808); (2) the work opportunity credit determined under IRC Section 51(a) extended through 2025); (3) the alcohol fuels credit determined under IRC Section 40(a); (4) the research credit (made permanent by PATH) determined under IRC Section 41(a); (5) the low-income housing credit (see Q 7801) determined under IRC Section 42(a); (6) the enhanced oil recovery credit (see Q 7884) under IRC Section 43(a); (7) in the case of an eligible small business, the disabled access credit determined under IRC Section 44(a); (8) the renewable electricity production credit under IRC Section 45(a) (extended only through 2009 under EIEA 2008); (9) the empowerment zone employment credit determined under IRC Section 1396(a) (extended through 2025); (10) the Indian employment credit as determined under IRC Section 45A(a) (extended through 2021); (11) the employer Social Security credit determined under IRC Section 45B(a); (12) the orphan drug credit determined under IRC Section 45C(a) (as modified by the 2017 Tax Act); (13) the new markets tax credit determined under IRC Section 45D(a) (extended through 2025); (14) in the case of an eligible employer (as defined in IRC Section 45E(c)); the small employer pension plan startup cost credit determined under IRC Section 45E(a); (15) the employer-provided child care credit determined under IRC Section 45F(a); (16) the railroad track maintenance credit determined under IRC Section 45G(a) (made permanent by the 2021 CAA, although the credit was reduced from 50 percent to 40 percent); (17) the biodiesel fuels credit determined under IRC Section 40A(a) (extended through 2022); (18) the low sulfur diesel fuel production credit determined under IRC Section 45H(a); (19) the marginal oil and gas well production credit determined under IRC Section 45I(a); (20) for tax years beginning after September 20, 2005, the distilled spirits credit determined under IRC Section 5011(a); (21) for tax year beginning after August 8, 2005, the advanced nuclear power facility production credit determined under IRC Section 45J(a); (22) for property placed in service after December 31, 2005, the nonconventional source production credit determined under IRC Section 45K(a); (23) the energy efficient home credit determined under IRC Section 45L(a) (extended through 2021); (24) the energy efficient appliance credit determined under IRC Section 45M(a) (extended through 2014); (25) the portion of the alternative motor vehicle credit to which IRC Section 30B(g)(1) applies; and (26) the portion of the alternative fuel vehicle refueling property credit to which IRC Section 30C(d)(1) applies (extended through 2021).[16]

      ETIA 2005 provides an alternative motor vehicle credit for qualified fuel cell vehicles, advanced lean-burn technology vehicles, qualified hybrid vehicles, and qualified alternative fuel vehicles.[17] (This credit replaced the prior deduction for qualified clean-fuel vehicle property, which expired on December 31, 2005.)[18] The portion of the credit attributable to vehicles of a character subject to an allowance for depreciation is treated as a portion of the general business credit; the remainder of the credit is a personal credit allowable to the extent of the excess of the regular tax (reduced by certain other credits) over the alternative minimum tax for the taxable year.[19]

      For new qualified plug-in electric drive motor vehicles acquired and placed in service after 2009, a credit is available. The credit can vary from $2,500 to $7,500 depending on battery capacity (and subject to phaseout based on number of vehicles sold by the manufacturer). The portion of the credit attributable to property of a character subject to an allowance for depreciation is treated as part of the general business credit. The balance of the credit is generally treated as a nonrefundable personal credit.[20] An alternative credit is available for certain plug-in electric cars placed in service after February 17, 2009 and before 2022. This credit is equal to 10 percent of cost, up to $2,500.[21]

      First-Time Homebuyer Credit

      There was a first-time homebuyer credit available for a home purchased after April 8, 2008 and through April 2010.[22] The credit was available for 10 percent of the purchase price, up to certain limits:

      • For homes purchased in 2009 and 2010, the dollar limits were $8,000 ($4,000 for a married individual filing separately).
      • For a home purchased after November 6, 2009 by a long-time resident treated as a first-time homebuyer, the dollar limit was only $6,500 ($3,250 for a married individual filing separately).
      • For a home purchased before November 7, 2009, the credit was phased out based on AGI of $75,000 to $95,000 ($150,000 to $170,000 for a joint return).
      • For a home purchased after November 6, 2009, the credit was phased out based on AGI of $125,000 to $145,000 ($225,000 to $245,000 for a joint return).

      For a home purchased after November 6, 2009, the credit was not available to a person for whom a personal exemption was allowable to another person. The credit was not available for a home purchased after November 6, 2009 if the purchase price exceeded $800,000.

      For a home purchased in 2008, the credit must generally be recaptured over a fifteen-year period beginning with the second year after the home is purchased. The recapture is accelerated if the home is sold or is no longer the taxpayer’s principal residence. Credit recapture does not apply to a home purchased in 2009 or 2010 unless the home was disposed of, or ceases to be used as a primary residence, within three years of purchase. For a first-time homebuyer’s credit that can be properly claimed in a year after 2008, the taxpayer can elect to claim the credit as of December 31 of the previous year.

      Making Work Pay Credit

      For 2009 and 2010, a “making work pay” credit was available equal to the lesser of (1) 6.2 percent of earned income or (2) $800 for a joint return and $400 for all others. The credit was reduced by 2 percent of the taxpayer’s modified adjusted gross income in excess of $150,000 for a joint return and $75,000 for all others. The credit was also reduced by certain other benefits provided by ARRA 2009. The credit was not available for nonresident aliens, for persons for whom a personal exemption was claimed on another person’s return, or an estate or trust.[23]

      Child and Dependent Care Credit in 2021

      The child and dependent care tax credit provides a tax credit to offset the cost of qualifying work-related dependent care expenses (a dependent who is a child must be under age 13 to qualify). Those expenses can include the cost of physically caring for the dependent—and also include household expenses, such as hiring someone to help with cooking and cleaning for a dependent, as long as the expenses are primarily for the benefit of the dependent.  For 2021 only, the dependent care tax credit is fully refundable under the American Rescue Plan Act (ARPA).  The maximum credit percentage was increased from 35 percent to 50 percent of qualifying dependent care expenses (the credit phases down to 20 percent for taxpayers with income between $125,000 and $183,000).  The level of qualifying dependent care expenses also increased for 2021—from $3,000 to $8,000 for a single qualifying dependent and from $6,000 to $16,000 for two or more qualifying dependents.

      The IRS released FAQ to help taxpayers understand the expanded child and dependent care tax credit in 2021. To claim the credit, taxpayers are required to have earnings.  The FAQ is clear that the amount of qualifying work-related expenses claimed cannot exceed the taxpayer’s earnings.

      Additionally, the taxpayer must subtract employer-provided dependent care benefits, including those provided through a flexible spending account, from total work-related expenses when calculating the credit. As in prior years, the more a taxpayer earns, the lower the percentage of work-related expenses that are taken into account in determining the credit.

      However, the credit is fully refundable for the first time in 2021. This means an eligible taxpayer can receive the credit even if they owe no federal income tax. To be eligible for the refundable credit, a taxpayer (or the taxpayer’s spouse on a joint return) must reside in the United States for more than half of the year.

      To claim the credit for 2021, taxpayers will need to complete Form 2441, Child and Dependent Care Expenses, and include the form when filing their tax returns in 2022. In completing the form to claim the 2021 credit, the taxpayer must provide a valid taxpayer identification number (TIN) for each qualifying person. Usually, this is the qualifying person’s Social Security number.

      [1].      Pub. Law No. 115-123.

      [2].     IRC Sec. 31(a).

      [3].     IRC Sec. 35.

      [4].     Treas. Reg. §1.31-2.

      [5].     IRC Sec. 32.

      [6].     IRC Sec. 35.

      [7].     IRC Sec. 21.

      [8].     IRC Sec. 22.

      [9].     IRC Sec. 23.

      [10].   IRC Sec. 24.

      [11].   IRC Sec. 25A, as amended by ATRA, Sec. 103.

      [12].   IRC Sec. 25B.

      [13].   IRC Sec. 25C, as amended by ATRA, Sec. 401 and extended by the Tax Certainty and Disaster Relief Act of 2020 and the Consolidated Appropriations Act of 2021.

      [14].   IRC Sec. 25D.

      [15].   IRC Secs. 53, 901.

      [16].   IRC Sec. 38(b).

      [17].   IRC Sec. 30B.

      [18].   See Sec. 1348, ETIA 2005; IRC Sec. 179A.

      [19].   See IRC Sec. 30B(g).

      [20].   IRC Sec. 30D, as amended by ARRA 2009.

      [21].   IRC Sec. 30, as amended by ARRA 2009, ATRA and the Tax Certainty and Disaster Relief Act of 2020 and the Consolidated Appropriations Act of 2021.

      [22].   IRC Sec. 36, as added by HERA 2008 and amended by ARRA 2009 and WHBAA 2009.

      [23].   IRC Sec. 36A, as amended by ARRA 2009.

  • 759. Who qualifies for the tax credit for the elderly and the permanently and totally disabled and how is the credit computed?

    • The credit is available to taxpayers age sixty-five or older, or those who are under age sixty-five, retired on disability, and were considered permanently and totally disabled when they retired.1

      “An individual is permanently and totally disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months. An individual shall not be considered to be permanently and totally disabled unless he furnishes proof of the existence thereof in such form and manner, and at such times, as the Secretary may require.”2

      The credit equals 15 percent of an individual’s IRC Section 22 amount for the taxable year, but may not exceed the amount of tax. This IRC Section 22 base amount is $5,000 for a single taxpayer or married taxpayers filing jointly if only one spouse qualifies for the credit; $7,500 for married taxpayers filing jointly if both qualify; and $3,750 for a married taxpayer filing separately.3 Married taxpayers must file a joint return to claim the credit, unless they lived apart for the entire taxable year.4

      This base figure is limited for individuals under age sixty-five to the amount of the disability income (taxable amount an individual receives under an employer plan as wages or payments in lieu of wages for the period he is absent from work on account of permanent and total disability) received during the taxable year.5 (Proof of continuing permanent and total disability may be required.)6 For married taxpayers who are both qualified and who file jointly, the base figure cannot exceed the total of both spouses’ disability income if both are under age sixty-five or if only one is under age sixty-five, the sum of $5,000 plus the disability income of the spouse who is under sixty-five.7

      The base figure (or the amount of disability income in the case of individuals under age sixty-five, if lower) is reduced dollar-for-dollar by one-half of adjusted gross income in excess of $7,500 (single taxpayers), $10,000 (joint return), or $5,000 (married filing separately).8 A reduction is also made for Social Security and railroad retirement benefits that are excluded from gross income, and certain other tax-exempt income.9


      1 .IRC Sec. 22(b).

      2 .IRC Sec. 22(e)(3).

      3 .IRC Sec. 22(c).

      4 .IRC Sec. 22(e)(1).

      5 .IRC Sec. 22(c)(2)(B)(i).

      6 .GCM 39269 (8-2-84).

      7 .IRC Sec. 22(c)(2)(B)(ii).

      8 .IRC Sec. 22(d).

      9 .IRC Sec. 22(c)(3).

  • 760. Who qualifies for the child tax credit?

    • Editor’s Note: The ARPA expanded and enhanced the child tax credit for the 2021 tax year. For tax years beginning after December 31, 2021 and before January 1, 2022, the child tax credit amount increased from $2,000 to $3,000 per qualifying child. The credit amount is also fully refundable for the 2021 tax year only (under TCJA, $1,400 was refundable, see below). The $3,000 amount is also further increased to $3,600 per qualifying child under the age of six as of December 31, 2021. Also, 17-year-olds will be treated as qualifying children in 2021. The income phaseout ranges for the enhanced tax credit have also been reduced. The phaseout will now begin at $150,000 for married taxpayers filing jointly and $75,000 for single filers (down from $400,000 and $200,000 for the standard child tax credit). Additionally, the IRS will now pay 50 percent of the 2021 child tax credit in the second half of 2021, using 2020 tax data (although the amounts may be subject to clawback in cases where the taxpayer does not qualify using 2021 tax information).

      Eligible taxpayers are not required to take any action to receive the advance payments on the 15th of every month. Monthly payments will total up to $300 for each child under age six and up to $250 per month for each child aged six and older. Depending upon the information the IRS has on file, payments will be made via direct deposit, paper checks or debit cards. The advance payments will total up to 50% of the amount the taxpayer is eligible to receive based on 2020 filing information. According to new IRS guidance, taxpayers who were not otherwise required to file tax returns for 2020 can file simplified 2020 returns to receive monthly advance payments of the expanded child tax credit. Those taxpayers can file Form 1040, Form 1040-SR or Form 1040-NR to provide Social Security numbers, addresses and other information. Those taxpayers must write “Rev. Proc. 2021-24” on the forms. Taxpayers who had $0 in adjusted gross income (AGI) can report $1 in AGI in order to file electronically and qualify for advance payments.[1]


      Planning Point: The IRS Child Tax Credit Update Portal provides information about the client’s eligibility for advance child tax credit payments and information about how those payments are made.  Clients can use this portal to set up direct deposit payments or change their bank account information. Taxpayers who do not elect direct deposit will receive a paper check.  Clients can also use the portal to elect to stop receiving advance payments and instead claim their entire child tax credit in a lump sum when they file their 2021 tax returns.  Married couples who elect to unenroll must each separately unenroll.  If only one spouse enrolls, the other will continue to receive 50% of the otherwise available monthly child tax credit.  Clients may wish to unenroll if they do not anticipate qualifying for the payment based on their 2021 income or if they would prefer to receive a larger tax refund.


      A child tax credit is available for each “qualifying child” (defined below) of eligible taxpayers who meet certain income requirements. The child tax credit is $1,000 ($2,000 for tax years beginning after 2017 and before 2026, see below).[2]

      Additional Rules for Tax Years Beginning After 2017 and Before 2026

      An expanded $2,000 child tax credit is available for tax years beginning after 2017 and before 2026 ($1,400 of this per-child credit is refundable). The taxpayer must include the Social Security number for each child for which the refundable portion of the child tax credit is claimed.[3] The $1,400 refundable amount will be indexed for inflation and rounded to the next multiple of $100 (the amount has remained at $1,400 through 2021, but see Editor’s Note, above).[4]

      A new family tax credit was created to allow for a $500 nonrefundable credit for dependent parents and other non-child dependents (the requirement for furnishing a Social Security number does not apply to this family tax credit).[5]


      Planning Point: For purposes of the definition of “dependent” for this provision, the IRS has released guidance stating that the exemption amount (which was otherwise reduced to zero for 2018-2025) will be treated as though it remained at the pre-reform $4,150 amount in 2018, $4,200 in 2019, and $4,300 in 2020.[6]


      The credit will phase out for taxpayers with AGI of $400,000 (joint returns) or $200,000 (all other filers). The phase out amounts are not indexed for inflation.[7] As is the case with the suspension of the personal exemption, these provisions are set to expire after 2025.

      The term qualifying child means a “qualifying child” of the taxpayer (as defined under IRC Section 152(c) – see below) who has not attained the age of seventeen.[8]

      “Qualifying child” means, with respect to any taxpayer for any taxable year, an individual:

      (1)  who is the taxpayer’s “child” (see below) or a descendant of such a child, or the taxpayer’s brother, sister, stepbrother, or stepsister or a descendant of any such relative;

      (2)  who has the same principal place of abode as the taxpayer for more than one-half of the taxable year; and

      (3)  who has not provided over one-half of such individual’s own support for the calendar year in which the taxpayer’s taxable year begins.[9]

      Additionally, a qualifying child must be either a citizen or a resident of the United States.[10]

      The term “child” means an individual who is: (1) a son, daughter, stepson, or stepdaughter of the taxpayer; or (2) an “eligible foster child” of the taxpayer.[11] An “eligible foster child” means an individual who is placed with the taxpayer by an authorized placement agency or by judgment decree, or other order of any court of competent jurisdiction.[12] Any adopted children of the taxpayer are treated the same as natural born children.[13]

      The amount of the credit is reduced for taxpayers whose modified adjusted gross income (MAGI) exceeds certain levels. A taxpayer’s MAGI is his adjusted gross income without regard to the exclusions for income derived from certain foreign sources or sources within United States possessions. Prior to 2018, the credit amount was reduced by $50 for every $1000, or fraction thereof, by which the taxpayer’s MAGI, exceeds the following threshold amounts: $110,000 for married taxpayers filing jointly, $75,000 for unmarried individuals, and $55,000 for married taxpayers filing separately.[14]

      Prior to 2018, the child tax credit was refundable to the extent of 15 percent of the taxpayer’s earned income in excess of $3,000 (previously, this amount was $10,000; see below).[15] For example, if the taxpayer’s earned income is $16,000, the excess amount would be $13,000 ($16,000 – $3,000 = $13,000), and the taxpayer’s refundable credit for one qualifying child would be $1,950 ($13,000 x 15 percent = $1,950). For families with three or more qualifying children, the credit is refundable to the extent that the taxpayer’s Social Security taxes exceed the taxpayer’s earned income credit if that amount is greater than the refundable credit based on the taxpayer’s earned income in excess of $3,000.[16] The previously applicable $10,000 income floor was indexed for inflation. ARRA 2009 reduced the dollar amount to $3,000 for 2009 through 2012.[17] ATRA extended the $3,000 floor amount through 2017, and the PATH Act made this provision permanent.[18] See above for the rules governing the credit from 2018-2026. (Prior to 2001, the child tax credit was refundable only for individuals with three or more qualifying children.)[19]

      The nonrefundable child tax credit can be claimed against the individual’s regular income tax and alternative minimum tax (see Q 760). The nonrefundable child tax credit cannot exceed the excess of (i) the sum of the taxpayer’s regular tax plus the alternative minimum tax over (ii) the sum of the taxpayer’s nonrefundable personal credits (other than the child tax credit, adoption credit, and saver’s credit) and the foreign tax credit for the taxable year.[20] For tax years beginning after 2001, the refundable child tax credit need not be reduced by the amount of the taxpayer’s alternative minimum tax.[21] The nonrefundable credit must be reduced by the amount of the refundable credit.[22]

      Some additional restrictions applying to the child tax credit include: (1) an individual’s tax return must identify the name and taxpayer identification number (Social Security number) of the child for whom the credit is claimed; and (2) the credit may be claimed only for a full taxable year, unless the taxable year is cut short by the death of the taxpayer.[23] For purposes of applying a uniform method of determining when a child attains a specific age, the Service has ruled that a child attains a given age on the anniversary of the date that the child was born (e.g., a child born on January 1, 1987, attains the age of 17 on January 1, 2004).[24] The IRS stated that it would apply Revenue Ruling 2003-72 retroactively and would notify those taxpayers entitled to a refund for 2002 as a result of Revenue Ruling 2003-72.[25]

      [1].      Rev. Proc. 2021-24.

      [2].     IRC Sec. 24(a).

      [3].      IRC Sec. 24(h)(7).

      [4].      IRC Sec. 24(h).

      [5].      IRC Sec. 24(h)(4).

      [6].      Notice 2018-70.

      [7].      IRC Sec. 24(h)(3).

      [8].     IRC Sec. 24(c)(1).

      [9].     IRC Sec. 152(c).

      [10].   IRC Sec. 24(c)(2).

      [11].   IRC Sec. 152(f)(1).

      [12].   IRC Sec. 152(f)(1)(C).

      [13].   IRC Sec. 152(f)(1)(B).

      [14].   IRC Sec. 24(b)(2).

      [15].   IRC Sec. 24(d)(1)(B)(i).

      [16].   IRC Sec. 24(d)(1).

      [17].   IRC Sec. 24(d)(3).

      [18].    ATRA, Sec. 103.

      [19].   IRC Sec. 24(d), prior to amendment by EGTRRA 2001.

      [20].   IRC Sec. 24(b)(3).

      [21].   IRC Sec. 24(d).

      [22].   IRC Sec. 24(d)(1).

      [23].   IRC Secs. 24(e), 24(f).

      [24].   Rev. Rul. 2003-72, 2003-2 CB 346.

      [25].   IRS Information Letter INFO-2003-0215 (8-29-2003).

  • 761. What is the Hope Scholarship (American Opportunity) Credit?

    • The Hope Scholarship (American Opportunity) Credit is available to certain eligible taxpayers who pay qualified tuition and related expenses.1

      The Hope Scholarship (American Opportunity) Credit provides a credit for each eligible student equal to the sum of: (1) 100 percent of qualified tuition and related expenses up to $2,000; plus (2) 25 percent of qualified tuition and related expenses in excess of $2,000, up to the applicable limit. The applicable limit ($4,000) is two times the $2,000 amount.2 AARA 2009 increased the credit amounts for 2009 and 2010 (later extended through 2012 and again early in 2013 by the American Taxpayer Relief Act of 2012 (“ATRA”) through 2017. This treatment was made permanent by the Protecting Americans from Tax Hikes Act of 2015 (PATH)).3 In earlier years, the amounts used to calculate the credit were adjusted for inflation and rounded to the next lowest multiple of $100.4 The maximum credit is now $2,500 ($2,000 + (25 percent × $2,000).

      The credit is available for four years of post secondary education (this provision was made permanent by PATH and applies for 2009 and thereafter), and can be used in only four taxable years.5 To qualify for the credit, the student must carry at least half of a full-time academic workload for an academic period during the taxable year.6

      An eligible student generally means a student who: (1) for at least one academic period beginning in the calendar year, is enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential and is enrolled in one of the first four years of post secondary education (two years prior to 2009), and (2) is free of any conviction for federal or state felony offenses consisting of the possession of a controlled substance.7

      Qualified tuition and related expenses are tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer (for whom he is allowed a dependency exemption) at an “eligible education institution.”8 Qualified tuition and related expenses do not include nonacademic fees such as room and board, medical expenses (including required student health fees), transportation, student activity fees, athletic fees, insurance expenses, and similar personal, living or family expenses unrelated to a student’s academic course of instruction.9 Additionally, qualified tuition and related expenses do not include expenses for a course involving sports, games or hobbies, unless it is part of the student’s degree program.10 AARA 2009 expanded qualified tuition and related expenses to include required course materials, and PATH made this provision permanent.

      An eligible educational institution generally means a post secondary educational institution that: (a) provides an educational program for which it awards a bachelor’s degree, or a two-year program that would be accepted for credit towards a bachelor’s degree; (b) has at least a one year program that trains students for gainful employment in a recognized profession; (c) participates in a federal financial aid program under Title IV of the Higher Education Act of 1965 or is certified by the Department of Education as eligible to participate in such a program; or (d) meets requirements for certain post secondary vocational, proprietary institutions of higher learning and certain institutions outside the United States. In any event, the institution must also be accredited or have been granted pre-accreditation status.11

      An academic period means a quarter, semester, trimester or other period of study (such as summer school session) as reasonably determined by an eligible educational institution.12 See Q 763 for a discussion of the limitations and phaseouts applicable to the American Opportunity Credit.


      1 .IRC Sec. 25A.

      2 .IRC Secs. 25A(b)(1), 25A(b)(4); Treas. Reg. §1.25A-3(a).

      3 .ATRA, Sec. 103.

      4 .IRC Sec. 25A(h)(1).

      5 .Treas. Reg. §1.25A-3(c).

      6 .IRC Sec. 25A(b)(2); Treas. Reg. §1.25A-3(d)(ii).

      7 .IRC Sec. 25A(b)(3); Notice 97-60, 1997-2 CB 310 (Sec. 1, A3); Treas. Reg. §1.25A-3(d)(1).

      8 .Treas. Reg. §1.25A-2(d)(1).

      9 .Treas. Reg. §1.25A-2(d)(3).

      10 .IRC Sec. 25A(f)(1); Treas. Reg. §1.25A-2(d)(5).

      11 .See IRC Sec. 25A(f)(2); HEA 1965 Sec. 481; Treas. Reg. §1.25A-2(b).

      12 .Treas. Reg. §1.25A-2(c).

  • 762. What is the Lifetime Learning Credit?

    • The Lifetime Learning Credit is available to certain eligible taxpayers who pay qualified tuition and related expenses.1

      The Lifetime Learning Credit is available in an amount equal to 20 percent of “qualified tuition and related expenses” (defined in Q 761) paid by the taxpayer during the taxable year for any course of instruction at an “eligible educational institution” (defined in Q 761) taken to acquire or improve the job skills of the taxpayer, his spouse or dependents. The Lifetime Learning Credit is a per taxpayer credit and the maximum credit available does not vary with the number of students in the family. The maximum amount of the credit in 2021 is $2,000 (20 percent of up to $10,000 of qualified tuition and related expenses).2

      Qualified tuition and related expenses, for the purposes of the Lifetime Learning Credit, include expenses for graduate as well as undergraduate courses. The Lifetime Learning Credit applies regardless of whether the individual is enrolled on a full-time, half-time, or less than half-time basis. Additionally, the Lifetime Learning Credit is available for an unlimited number of taxable years.3

      Where taxpayers had pre-paid their child’s tuition in November 2001 for the academic period that began during the first three months of the following taxable year (i.e., the spring semester of 2002), the prepayment amount was properly includable in the calculation of the taxpayers’ Lifetime Learning Credit for the 2001 taxable year, not the 2002 taxable year.4 See Q 761 for a discussion of the Hope Scholarship (American Opportunity) Credit and Q 763 for a discussion of the limitations and phaseouts that apply to both credits.


      1. IRC Sec. 25A.

      2. IRC Sec. 25A(c); Treas. Reg. §1.25A-4(a).

      3. Treas. Reg. §§1.25A-4(b), 1.25A-4(c).

      4Patel v. Comm., TC Summ. Op. 2006-40.

  • 763. What limitations and phaseouts apply to the Hope Scholarship (American Opportunity) and Lifetime Learning Credits?

    • The Code sets forth special rules coordinating the interaction of the Hope Scholarship (American Opportunity) and Lifetime Learning Credits. The Lifetime Learning Credit is not available with respect to a student for whom an election is made to take the Hope Scholarship Credit during the same taxable year.1 However, the taxpayer may use the American Opportunity Credit for one student and the Lifetime Learning Credit for other students in the same taxable year.

      Both credits are subject to the same phaseout rules based on the taxpayer’s modified adjusted gross income (MAGI). MAGI is the taxpayer’s adjusted gross income without regard to the exclusions for income derived from certain foreign sources or sources within United States possessions. The maximum credit in each case is reduced by the credit multiplied by a ratio. For single taxpayers, the ratio equals the excess of (i) the taxpayers’ MAGI over $40,000 to (ii) $10,000. For married taxpayers filing jointly, the ratio equals (a) the excess of the taxpayer’s MAGI over $80,000 to (b) $20,000.2 The $40,000 and $80,000 amounts are adjusted for inflation and rounded to the next lowest multiple of $1,000.3 For 2021, the threshold amounts are $80,000 for single taxpayers and $160,000 for married taxpayers filing jointly for the Lifetime Learning Credit.

      For 2020, the threshold amounts were $59,000 for single taxpayers and $118,000 for married taxpayers filing jointly for the Lifetime Learning Credit. For 2019, the threshold amounts are $58,000 for single taxpayers and $116,000 for married taxpayers. For 2018, the threshold amounts are $57,000 for single taxpayers and $114,000 for married taxpayers filing jointly. For 2017, the threshold amounts were $56,000 for single taxpayers and $112,000 for married taxpayers filing jointly. For 2016, the threshold amounts were $55,000 for single taxpayers and $111,000 for married taxpayers filing jointly.4 The threshold amounts for the American Opportunity Credit are $160,000 for married taxpayers filing jointly and $80,000 for single taxpayers for 2012-2021.

      The amount of qualified tuition and related expenses for both credits is limited by the sum of the amounts paid for the benefit of the student, such as scholarships, education assistance advances, and payments (other than a gift, bequest, devise, or inheritance) received by an individual for educational expenses attributable to enrollment.5 The IRS has determined that qualified tuition and related expenses paid with distributions of educational benefits from a trust could be used to compute American Opportunity and Lifetime Learning Credits if the distributions were included in the taxable income of the beneficiaries.6

      Neither credit is allowed unless a taxpayer elects to claim it on a timely filed (including extensions) federal income tax return for the taxable year in which the credit is claimed. The election is made by completing and attaching Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), to the return.7 Neither credit is allowed unless the taxpayer provides the name and the taxpayer identification (i.e., Social Security) number of the student for whom the credit is claimed.8

      If the student is claimed as a dependent on another individual’s tax return (e.g., parents) he cannot claim either credit for himself, even if he paid the expenses himself.9 (The Service has privately ruled that a student was entitled to claim a Hope Scholarship Credit on his own return even though his parents were eligible to claim him as a dependent, but chose not to do so.10) However, if another individual is eligible to claim the student as a dependent, but does not do so, only the student may claim the Hope or Lifetime Learning Credit for his own qualified tuition and related expenses.11 Both credits are unavailable to married taxpayers filing separately.12 Neither of these credits is allowed for any expenses for which there is a deduction available.13 Taxpayers are not eligible to claim an American Opportunity or Lifetime Learning Credit and the deduction for qualified higher education expenses in the same year with respect to the same student.14

      A taxpayer may claim an American Opportunity or Lifetime Learning Credit and exclude distributions from a qualified tuition program on behalf of the same student in the same taxable year if the distribution is not used to pay the same educational expenses for which the credit was claimed.15 See Q 687.

      A taxpayer can claim an American Opportunity or Lifetime Learning Credit and exclude distributions from a Coverdell Education Savings Account (ESA – see Q 681) on behalf of the same student in the same taxable year if the distribution is not used to pay the same educational expenses for which the credit was claimed.16 A taxpayer may elect not to have the American Opportunity or Lifetime Learning Credit apply with respect to the qualified higher education expenses of an individual for any taxable year.17

      For 2009 through 2012, AARA 2009 (as amended) made the American Opportunity Credit allowable against the alternative minimum tax and a portion of the tax is made refundable. ATRA did not extend the provision that allowed the American Opportunity Credit to be taken against the alternative minimum tax.

      Reporting. For the reporting requirements for higher education tuition and related expenses, see IRC Section 6050S.18 For the reporting requirements for qualified tuition and related expenses, see Treasury Regulation Section 1.6050S-1; TD 9029.19


      1. IRC Sec. 25A(c)(2)(A); Treas. Reg. §1.25A-1(b).

      2. IRC Sec. 25A(d); Treas. Reg. §1.25A-1(c).

      3. IRC Sec. 25A(h)(2); Treas. Reg. §1.25A-1(c)(3).

      4. Rev. Proc. 2013-35, Rev. Proc. 2014-61, Rev. Proc. 2015-53, Rev. Proc. 2016-55, Rev. Proc. 2018-57, Rev. Proc. 2019-44, Rev. Proc. 2020-45.

      5. IRC Sec. 25A(g)(2); Treas. Reg. §1.25A-5(c).

      6. Let. Rul. 9839037.

      7. Treas. Reg. §1.25A-1(d).

      8. Treas. Reg. §1.25A-1(e).

      9. IRC Sec. 25A(g)(3); Treas. Reg. §1.25A-1(f)(1).

      10. Let. Rul. 200236001.

      11. Treas. Reg. §1.25A-1(f)(1).

      12. IRC Sec. 25A(g)(6); Treas. Reg. §1.25A-1(g).

      13. IRC Sec. 25A(g)(5); Treas. Reg. §1.25A-5(d).

      14. IRC Sec. 222(c)(2)(A).

      15. See IRC Sec. 529(c)(3)(B)(v).

      16. See IRC Sec. 530(d)(2)(C).

      17. IRC Sec. 25A(e).

      18. As amended by P.L. 107-131 (1-16-2002).

      19. 67 Fed. Reg. 77678 (12-19-02). See also Notice 2006-72, 2006-36 IRB 363.

  • 764. What is the credit for nonbusiness energy property that may be taken against the tax?

    • Editor’s Note: The credit for nonbusiness energy property initially expired on December 31, 2007, but has been revived by Congress several times. As of the date of this publication, this provision has been extended through 2021. However, taxpayers should note that Congress has a history of retroactively restoring the applicability of many tax credits.2

      An individual taxpayer may claim as a credit an amount equal to the sum of: (1) 10 percent of the amount paid or incurred by the taxpayer for “qualified energy efficiency improvements” (see below) installed during the taxable year; and (2) the amount of the “residential energy property expenditures” (see below) paid or incurred by the taxpayer during the taxable year.3

      Qualified energy efficiency improvements means any energy efficient “building envelope component” (see below) that meets certain energy conservation criteria, if: (1) the component is installed in or on a dwelling located in the United States that is owned and used by the taxpayer as his principal residence; (2) original use of the component commences with the taxpayer; and (3) the component reasonably can be expected to remain in use for at least five years.4 The term “building envelope component” means: (1) any insulation material or system specifically and primarily designed to reduce the heat loss or gain of a dwelling when installed in or on the dwelling; (2) exterior windows, including skylights; (3) exterior doors; and (4) metal roofs if the roof has appropriate coatings specifically and primarily designed to reduce the heat gain of the dwelling.5

      In guidance, the Service clarified that a component will be treated as reasonably expected to remain in use for at least five years if the manufacturer offers, at no extra charge, at least a two-year warranty providing for repair or replacement of the component in the event of a defect in materials or workmanship. However, if the manufacturer does not offer such a warranty, all relevant facts and circumstances are taken into account in determining whether the component reasonably can be expected to remain in use for at least five years. The Service also confirmed that a taxpayer may rely on a manufacturer’s certification that a building envelope component is an “eligible building envelope component.” A taxpayer is not required to attach the certification to the tax return on which the credit is claimed, but should retain the certification statement as part of his records. In addition, the Service stated that a credit is allowed only for amounts paid or incurred to purchase the components, not for the onsite preparation, assembly, or original installation of the components.6

      Residential energy property expenditures means expenditures made by the taxpayer for “qualified energy property” that is: (1) installed on or in connection with a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayer’s principal residence; and (2) originally placed in service by the taxpayer.7 The term “qualified energy property” means: (1) “energy-efficient building property” (see below); (2) a qualified natural gas, propane, oil furnace or hot water boiler; or (3) an advanced main air circulating fan. All of the types of property listed in the preceding sentence must meet certain performance and quality standards.8 “Energy efficient building property” means: (1) electric heat pump water heaters; (2) electric heat pumps; (3) geothermal heat pumps; (4) central air conditioners; and (5) natural gas, propane, or oil water heaters.9

      The Service has confirmed that a taxpayer may rely on a manufacturer’s certification that a product is “qualified energy property.” A taxpayer is not required to attach the certification to the tax return on which the credit is claimed, but should retain the certification statement as part of his records. In addition, the Service stated that a credit is allowed for amounts paid or incurred to purchase qualified energy property and for expenditures for labor costs allocable to the onsite preparation, assembly, or original installation of the property.10 The Service has issued additional guidance regarding the credit.11

      The lifetime limitation with respect to any taxpayer for any taxable year is $500.12 An additional limit of $200 applies to windows.13 Other limits are as follows: advanced main air circulating fans – $50; qualified natural gas, propane, oil furnace or hot water boilers – $150; and energy-efficient building property – $300.14

      The credit is available for property placed in service after December 31, 2005, and before January 1, 2008, and in 2009 through 2020. (See Editor’s Note above.)15


      1.Pub. Law 116-94.

      2 .IRC Sec. 25C(g), as amended by EIEA 2008, ARRA, ATRA, the Bipartisan Budget Act of 2018, and FCAA 2020.

      3 .IRC Sec. 25C(a).

      4 .IRC Sec. 25C(c)(1).

      5 .IRC Sec. 25C(c)(2).

      6 .Notice 2006-26, 2006-11 IRB 622.

      7 .IRC Sec. 25C(d)(1).

      8 .IRC Sec. 25C(d)(2).

      9 .IRC Sec. 25C(d)(3).

      10 .Notice 2006-26, 2006-11 IRB 622.

      11 .See Notice 2006-71, 2006-34 IRB 316 (clarifying the effective dates); Notice 2006-53, 2006-25 IRB 1180 (clarifying that exterior siding does not qualify as an eligible building envelope component).

      12 .IRC Sec. 25C(b)(1).

      13 .IRC Sec. 25C(b)(2).

      14 .IRC Sec. 25C(b)(3).

      15 .IRC Sec. 25C(g), as amended by ATRA, Sec. 401.

  • 765. What is the residential energy efficient property credit that may be taken against the tax?

    • Through 2019, an individual taxpayer may claim as a credit an amount equal to the sum of 30 percent of the following expenditures made by the taxpayer during the taxable year: (1) “qualified solar electric property” (see below); (2) “qualified solar water heating property” (see below); (3) “qualified fuel cell property” (see below); (4) qualified small wind energy property (see below); and (5) qualified geothermal heat pump property (see below).1 Solar water heating property must be certified in order for the credit to be claimed.2 The Protecting Americans from Tax Hikes Act of 2015 (PATH) modified the applicable percentage used to determine the amount of the credit for tax years after 2019. In 2020, the applicable percentage is reduced to 26 percent, and further reduced to 22 percent in 2021.  The Bipartisan Budget Act of 2018 provides that these reduced percentages apply for property placed into service after 2016.

      “Qualified solar water heating property expenditure” means an expenditure for property to heat water for use in a dwelling unit located in the United States and used as a residence by the taxpayer if at least half of the energy used by such property for such purpose is derived from the sun. The term “qualified solar electric property expenditure” means an expenditure for property which uses solar energy to generate electricity for use in a dwelling unit located in the United States and used as a residence by the taxpayer. “Qualified fuel cell property expenditure” means an expenditure for qualified fuel cell property (as defined in IRC Section 48(c)(1)) installed on or in connection with a dwelling unit located in the United States and used as a principal residence by the taxpayer. “Qualified small wind energy property expenditure” means an expenditure for property which uses a wind turbine to generate electricity for use in connection with a dwelling unit located in the United States and used as a residence by the taxpayer. “Qualified geothermal heat pump property expenditure” means an expenditure for qualified geothermal heat pump property installed on or in connection with a dwelling unit located in the United States and used as a residence by the taxpayer.3

      A special rule provides that expenditures allocable to a swimming pool, hot tub, or any other energy storage medium that has a function other than the function of storage cannot be taken into account for these purposes.4

      The maximum credit allowed for any taxable years before 2009 cannot exceed $2,000 with respect to qualified solar water heating property expenditures, $500 with respect to each half kilowatt of capacity of qualified fuel cell property (as defined in section 48(c)(1)) for which qualified fuel cell property expenditures are made, $500 with respect to each half kilowatt of capacity (not to exceed $4,000) of wind turbines for which qualified small wind energy property expenditures are made, and $2,000 with respect to any qualified geothermal heat pump property expenditures.5 For tax years starting in 2009, the only remaining limit is the $500 limit for each half-kilowatt of capacity of fuel cell plants. The unused portion of the credit can be carried forward to the succeeding taxable year.6

      The credit is generally available for property placed in service after December 31, 2005 and before January 1, 2022.7  The reduced rates prescribed by PATH apply to property placed into service after 2016 under the Bipartisan Budget Act of 2018.


      1 .IRC Sec. 25D(a).

      2 .IRC Sec. 25D(b)(2).

      3 .IRC Sec. 25D(d).

      4 .IRC Sec. 25D(e)(3).

      5 .IRC Sec. 25D(b).

      6 .See IRC Sec. 25D(c).

      7 .See Sec. 1333, Energy Policy Act of 2005; IRC Sec. 25D(g).

  • 766. What is the alternative motor vehicle credit that may be taken against the tax?

    • The alternative motor vehicle credit is equal to the sum of: (A) the new qualified fuel cell motor vehicle credit; (B) the new advanced lean burn technology motor vehicle credit; (C) the new qualified hybrid vehicle credit; (D) the new qualified alternative motor vehicle credit; and (E) the plug-in conversion credit.1 (This credit replaces the prior deduction for qualified clean-fuel vehicle property, which sunset on December 31, 2005.)2

      (A) The new qualified fuel cell motor vehicle credit is based on the weight of the vehicle, and ranges from $8,000 (8,500 pounds maximum) to $40,000 (over 26,000 pounds).3 The amount determined above with respect to a passenger automobile or light truck is increased if the vehicle achieves certain fuel efficiencies, ranging from $1,000 to $4,000.4 The credit for passenger automobiles and light trucks can be as much as $12,000.

      The term “new qualified fuel cell motor vehicle” means a motor vehicle: (1) propelled by power derived from one or more fuel cells that convert chemical energy directly into electricity by combining oxygen with hydrogen fuel that is stored on board the vehicle in any form and may or may not require reformation prior to use; (2) that, in the case of a passenger vehicle or light truck, has received a certificate that the vehicle meets certain emission levels; (3) the original use of which begins with the taxpayer; (4) that is acquired for use or lease by the taxpayer and not for resale; and (5) that is made by a manufacturer.5

      (B) The amount of the new advanced lean burn technology motor vehicle credit is based on fuel economy, and ranges from $400 to $2,400. The amount of the credit is increased by the conservation credit (based on lifetime fuel savings), and ranges from $250 to $1,000.6 The credit for passenger automobiles and light trucks can be as much as $3,400.

      The term “advanced lean burn technology motor vehicle” means a passenger automobile or light truck: (1) with an internal combustion engine that (i) is designed to operate primarily using more air than is necessary for complete combustion of the fuel, (ii) incorporates direct injection, (iii) achieves at least 125 percent of the 2002 model year city fuel economy, and (iv) for 2004 and later model vehicles, has received a certificate that the vehicle meets or exceeds certain emission standards; (2) the original use of which begins with the taxpayer; (3) is acquired for use or lease by the taxpayer and not for resale; and (4) is made by a manufacturer.7

      (C) The new qualified hybrid motor vehicle credit amount is determined as follows: (1) If the new qualified hybrid motor vehicle is a passenger automobile or light truck weighing no more than 8,500 pounds, the credit amount is the sum of the fuel economy amount and the conservation credit (see (B), above).8 (2) For other motor vehicles, the credit amount is equal to the applicable percentage of the “qualified incremental hybrid cost” (i.e., the excess of the manufacturer’s suggested retail price for such vehicle over the price for a comparable gas or diesel powered vehicle) of the vehicle as certified.9 The credit for passenger automobiles and light trucks can be as much as $3,400.

      A “new qualified hybrid motor vehicle” means a motor vehicle that: (1) draws propulsion energy from onboard sources of stored energy that are both (i) an internal combustion or heat engine using consumable fuel, and (ii) a rechargeable energy storage system; (2) has been certified as meeting specified emission standards; (3) has maximum available power meeting certain percentages based on weight; (4) the original use of which begins with the taxpayer; (5) is acquired for use or lease by the taxpayer; and (6) is made by a manufacturer.10

      (D) The new qualified alternative fuel motor vehicle credit is an amount equal to the applicable percentage of the incremental cost of any new qualified alternative fuel motor vehicle.11 The “applicable percentage” is 50 percent, plus 30 percent if the vehicle has been certified as meeting certain emission standards.12 The “incremental cost” (i.e., the excess of the manufacturer’s suggested retail price for the vehicle over the price for a gas or diesel powered vehicle of the same model) cannot exceed $5,000 to $40,000 based on the weight of the vehicle.13

      “New qualified alternative fuel motor vehicle” means any motor vehicle: (1) that is only capable of operating on an alternative fuel; (2) the original use of which begins with the taxpayer; (3) is acquired by the taxpayer for use or lease but not for resale; and (4) is made by a manufacturer.14 “Alternative fuel” means compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, and any liquid at least 85 percent of the volume of which consists of methanol.15

      Certifications and Limitations for Hybrid Vehicles

      Certifications. The tax credit for hybrid vehicles may be as much as $3,400 for those who purchase the most fuel-efficient vehicles. (For the guidance used by manufacturers in certifying credit amounts, see Notice 2006-9.)16 The Service cautions that even though a manufacturer has certified a vehicle, taxpayers must meet the following requirements to qualify for the credit:

      (1)The vehicle must be placed in service after December 31, 2005, and purchased on or before December 31, 2009.17

      (2)The original use of the vehicle must begin with the taxpayer claiming the credit.

      (a)The credit may only be claimed by the original owner of a new, qualifying, hybrid vehicle and does not apply to a used hybrid vehicle.

      (3)The vehicle must be acquired for use or lease by the taxpayer claiming the credit.

      (a)The credit is only available to the original purchaser of a qualifying hybrid vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.

      (b)For qualifying vehicles used by a tax-exempt entity, the person who sold the qualifying vehicle to the person or entity using the vehicle is eligible to claim the credit, but only if the seller clearly discloses in a document to the tax-exempt entity the amount of credit.

      (4)The vehicle must be used predominantly within the United States.

      Limitations. There is a limit on the number of new qualified hybrid and advanced lean burn technology vehicles eligible for the credit. The phaseout period begins with the second calendar quarter following the calendar quarter that includes the first date on which the number of qualified vehicles manufactured by the manufacturer is at least 60,000.18 The Service publishes notices providing the adjusted credit amount based on the actual number of vehicles sold for the applicable quarter.

      Effective dates. The credits are in effect as follows: new qualified fuel cell motor vehicle credit (2006-2021);19 (B) new advanced lean burn technology motor vehicle credit (2006-2010); (C) new qualified hybrid vehicle credit (2006-2009); and (D) new qualified alternative fuel motor vehicle credit (2006-2010).


      1 .IRC Sec. 30B(a).

      2 .See Sec. 1348, ETIA 2005; IRC Sec. 179A.

      3 .IRC Sec. 30B(b)(1).

      4 .IRC Sec. 30B(b)(2).

      5 .IRC Sec. 30B(b)(3).

      6 .IRC Sec. 30B(c)(2).

      7 .IRC Sec. 30B(c)(3).

      8 .IRC Sec. 30B(d)(2)(A).

      9 .IRC Sec. 30B(d)(2)(B).

      10 .IRC Sec. 30B(d)(3).

      11 .IRC Sec. 30B(e)(1).

      12 .IRC Sec. 30B(e)(2).

      13 .IRC Sec. 30B(e)(3).

      14 .IRC Sec. 30B(e)(4)(A).

      15 .IRC Sec. 30B(e)(4)(B).

      16 .2006-6 IRB 413.

      17 .IRC Sec. 30B(k)(3).

      18 .IRC Sec. 30B(f).

      19.IRC 30B(k)(1) as amended by FCAA 2020.

  • 767. What tax credits are available for plug-in electric vehicles?

    • Editor’s Note: As of the date of this publication, Congress has extended the special tax credit for two-wheeled plug-in vehicles through 2021.

      The ARRA modified the credit for qualified plug-in electric drive vehicles purchased after December 31, 2009. To qualify, vehicles must be newly purchased, have four or more wheels, have a gross vehicle weight rating of less than 14,000 pounds, and draw propulsion using a battery with at least four kilowatt hours that can be recharged from an external source of electricity. The minimum amount of the credit for qualified plug-in electric drive vehicles is $2,500 and the credit tops out at $7,500, depending on the battery capacity. The full amount of the credit will be reduced with respect to a manufacturer’s vehicles after the manufacturer has sold at least 200,000 vehicles.1

      ARRA also creates a special tax credit for two types of plug-in vehicles—certain low-speed electric vehicles and two- or three-wheeled vehicles. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after February 17, 2009, and before January 1, 2014. The Protecting Americans from Tax Hikes Act extended this credit for two-wheeled vehicles through 2016, and BBA 2018 extended the credit through 2017. To qualify, a vehicle must be either a low speed vehicle propelled by an electric motor that draws electricity from a battery with a capacity of 4 kilowatt hours or more or be a two- or three-wheeled vehicle propelled by an electric motor that draws electricity from a battery with the capacity of 2.5 kilowatt hours. A taxpayer may not claim this credit if the plug-in electric drive vehicle credit is allowable.


      1. IRC Sec. 30D.

  • 768. What is the tax credit for employers that provide paid family and medical leave to employees under the 2017 tax reform law?

    • Editor’s Note: See Q 769 for information on the Families First Coronavirus Response Act leave requirements. See Q 770 to Q 775 for a summary of the DOL frequently asked questions about implementation of the new law.

      The 2017 Tax Act created a new temporary tax credit for employers that provide paid family and medical leave to employees.[1]  The credit is an amount equal to 12.5 percent of the wages that are paid to qualifying employees during a period where the employee was on family and medical leave if the employee is paid 50 percent of the normal wages that he or she would receive from the employer.  The credit increases by 0.25 percentage points (but can never exceed 25 percent) for each percentage point by which the rate of payment exceeds 50 percent of wages.  Only 12 weeks of family and medical leave can be taken into account for any one employee.

      In order to qualify, employers must have a written policy in place to allow all qualifying full-time employees no less than two weeks of paid family and medical leave each year.  Further, all part-time employees must be allowed a pro-rated amount of paid family and medical leave.[2]  Any leave paid for by the state or local government is not taken into account.[3]

      “Qualifying employees” are those who have been employed by the employer for one year or more and who had compensation that did not exceed 60 percent of the compensation threshold for highly compensated employees[4] in the previous year.[5]

      “Family and medical leave” is as defined under Section 102(a)(1)(a)-(e) or Section 102(a)(3) of the Family and Medical Leave Act of 1993.  Paid leave that is vacation leave, personal leave or other medical or sick leave does not qualify for the new tax credit.[6]

      This credit is only available for tax years beginning after December 31, 2017 and before December 31, 2025 (as extended by the 2020 year-end Covid-19 stimulus package), and is a part of the general business tax credit.[7]  The credit is allowed against the alternative minimum tax (AMT).


      Planning Point: To prevent “double dipping”, the Consolidated Appropriations Act of 2021 provides that taxpayers are not entitled to claim the Section 45S tax credit if they also claimed an employee retention tax credit with respect to the same wages.


      _________________

      [1]      IRC Sec. 45S (added by the Tax Cuts and Jobs Act).

      [2]      IRC Sec. 45S(c)(1).

      [3]      IRC Sec. 45S(c)(4).

      [4]      Under IRC Sec. 414(g)(1)(B).

      [5]      IRC Sec. 45S(d).

      [6]      IRC Sec. 45S(e).

      [7]      IRC Sec. 45S(a)(1).

  • 769. What is the new paid sick leave law enacted under the Families First Coronavirus Response Act (FFCRA) to provide assistance during the COVID-19 pandemic? How were FMLA leave rules expanded?

    • In response to the COVID-19 pandemic, Congress enacted the Families First Coronavirus Response Act (FFCRA) in March 2020, which applies to private employers with fewer than 500 employees (and government employers) and made three key changes to the law.

      The Act: (1) provided 80 hours (10 days) of paid sick leave for employees (pro-rated for part-time workers), (2) expanded Family and Medical Leave Act (FMLA) protections and (3) provided a tax credit for employers who pay employee wages under the new rules.


      Planning Point: Employers who temporarily closed were under no obligation to provide paid leave to employees under the FFCRA. Only those who continued to have work for the employee to perform were required to provide the paid leave during 2020.  For 2021, employers had the option of providing paid leave and receiving a tax credit but were not required to offer paid time off.


      The additional paid sick leave is capped at $511 per day (total of $5,110) for employees who cannot go to work or telecommute because they:

      (1)  experienced COVID-19 symptoms and seeking a diagnosis,

      (2)  were advised by a healthcare provider to self-quarantine (the advice had to be specific to the patient, based on the provider’s belief that the person contracted COVID-19 or was particularly vulnerable to the virus), or

      (3)  was subject to government-mandated quarantine or a recommendation to self-quarantine.

      The additional paid sick leave was capped at 2/3 of the employee’s pay rate, subject to a maximum of $200 per day or $2,000 total if the employee was (1) caring for or assisting someone subject to quarantine, (2) caring for a child whose school or care provider is unavailable (whether or not that care provider is usually paid for childcare services) or (3) experiencing “substantially similar conditions” specified by Health and Human Services (HHS).  In July 2021, the IRS clarified that an employer is entitled to a tax credit for paid leave provided to employees who take time off to receive a COVID-19 vaccine, accompany a household or family member who is receiving a COVID-19 vaccine or to care for a household or family member who is recovering from a reaction to immunization.


      Planning Point: The Department of Labor (DOL) regulations are clear that orders to quarantine or isolation orders included “stay at home” orders issued by federal, state and local governments in response to COVID-19. This included shelter in place orders and stay-at-home orders that applied to certain categories of taxpayers (those over 65, for example).


      Planning Point: For paid leave based on the need to provide childcare, only one caregiver was eligible for the leave. Further, if the child was over age 14, the parent was required to provide an explanation of the special circumstances giving rise to the need for care during daylight hours.[1]


      The 14 days of paid sick leave generally had to be (1) available continuously and (2) available from the date beginning 15 days after the FFCRA effective date (the requirement expired after December 31, 2020). The applicable rate of pay depended on whether the employee was a salary worker, hourly worker or variable hourly worker. Pay for salary workers was payment for 80 hours. Hourly workers were paid for the average number of hours they were scheduled to work during the two-week period.


      Planning Point: Each employee was only entitled to one cumulative period of leave. For example, if the employee used 30 hours of paid leave with one employer and changes employers, the second employer was only obligated to provide the remaining 50 hours of paid leave.


      A formulaic approach was taken with respect to employees whose hours vary, based on historical or anticipated hours of work. This approach based sick pay on the average number of hours that the employee was scheduled per day over the six-month period ending on the date on which the employee took leave, including hours for which the employee took leave of any type or (2) if the employee did not work over such period, the reasonable expectation of the employee at the time of hiring of the average number of hours per day that the employee would normally be scheduled to work.

      Payment was also based on whether the employee missed work because of personal coronavirus diagnosis (full payment of the employee’s regular rate) or based on a family member’s situation (2/3 of the employee’s regular rate).

      The 80 hours of leave was required in addition to benefits already offered by the employer. Employers could not force employees to use other leave benefits simultaneously. However, employers could agree to allow employees to supplement FFCRA paid leave (when only 2/3 pay was available) with otherwise available employer-sponsored leave so that the employee received 100 percent of pay. Employers could not require employees to use their leave to do so. If an employer allowed FFCRA leave to be supplemented with employer-sponsored leave, only the FFCRA portion of the pay was available for tax credit purposes.

      The DOL regulations created some uncertainty over the concurrent use of leave, but later-released FAQ clarified this point. An employer could require that any paid leave available to an employee under the employer’s policies to allow an employee to care for children because of COVID-19-related childcare needs run concurrently with paid expanded FFCRA FMLA leave.

      The employer was required to pay the employee’s full pay during the leave until the employee had exhausted available paid leave under the employer’s plan—including vacation and/or personal leave (typically not sick or medical leave). However, the employer could only obtain tax credits for wages paid at 2/3 of the employee’s regular rate of pay, up to the daily and aggregate FFCRA limits ($200 per day or $10,000 in total).

      If the employee exhausted available paid leave under the employer’s plan, but had more paid FFCRA FMLA leave available, the employee received any remaining paid FFCRA leave (subject to the FFCRA caps). If both employer and employee agreed, and subject to federal or state law, paid leave provided by an employer could supplement 2/3 pay under the expanded FMLA provisions so that the employee received the full amount of the employee’s normal compensation.

      An employee could elect—but could not be required by the employer—to take paid sick leave under the expanded FMLA rules or paid leave under the employer’s plan for the first two weeks of unpaid expanded family and medical leave, but not both. If, however, an employee used some or all paid sick leave under the FFCRA, any remaining portion of that employee’s first two weeks of expanded family and medical leave could be unpaid. During the period of unpaid FMLA leave, the employee could choose—but the employer could not require—to use paid leave under the employer’s policies that would be available to the employee to take in order to care for the employee’s child or children childcare (or school) was unavailable due to a COVID-19 related reason concurrently with the unpaid leave.


      Planning Point: The new paid leave rule was effective April 1, 2020. Employers were not permitted to “deduct” leave taken before that date from the eighty hours of paid sick leave.


      Small businesses with fewer than 50 employees were exempt from the new rules if providing the leave would jeopardize the viability of the business. See Q 775 for more information on this exemption.

      FMLA eligibility was be extended to apply to all employers (not only those with 50 plus employees) and to employees who have worked at least 30 days (rather than 12 months). The employer was required to provide up to 12 weeks of leave (with the first two unpaid, and the remaining paid at 2/3 of the employee’s regular rate, capped at $200 per day or $10,000 total). (The first two weeks could be paid under the expanded 80-hours of paid sick leave). This relief was available if the employee was caring for a child because the school or care provider was unavailable due to COVID-19 and the employee was unable to work or telecommute.

      FFCRA prohibited covered employers from retaliating or otherwise discriminating against employees for taking paid sick leave or paid FMLA leave. See Q 777.

      The employer tax credit was computed each quarter, allowing as a credit (1) the amount of qualified paid sick leave wages paid in weeks one to two, and (2) qualified FMLA wages paid (in the remaining ten weeks) during the quarter. The credit was taken against the employer’s employment tax liabilities, including Social Security, Medicare and federal income tax withholding. Employers could access amounts that would otherwise be deposited with the IRS with respect to wages paid after April 1, 2020.


      Planning Point: According to IRS FAQ, there is no credit for the employer portion of the Social Security tax because the qualified leave wages are not subject to this tax.


      Amounts in excess of the employer’s taxes due were refundable as a credit (in the same manner as though the employer had overpaid taxes during the quarter).

      Employers could also claim a tax credit for qualified health plan expenses to provide and maintain a group health plan allocable to the employee’s qualified leave wages.


      Planning Point: IRS guidance clarified that the credit for the full amount of qualified leave payments, allocable qualified health expenses and the employer’s share of the Medicare tax are allowed against employment taxes on all compensation paid to all employees.[2]


      To claim the credit, employers simply retained the amount of the credit. For example, if the employer pays $10,000 in qualifying wages and is responsible for payroll taxes of $15,000 for the period, the employer subtracts the $10,000 from that period’s payroll tax payment. The employer is entitled to withhold payments from the employer and employee portions of the Social Security and Medicare tax that the employer is responsible for withholding and paying over to the IRS, as well as from any federal income tax withholding.  If the available credit exceeded the employer’s withholding obligations, the employer could file IRS Form 7200 to claim the remaining amounts.

      Self-employed taxpayers under similar circumstances also qualify for the credits, and could reduce estimated tax payments.

      [1].      See IRS FAQ, available at: https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs.

      [2].      Note that IRS and DOL guidance has been released on a rolling basis. IRS FAQ on the credit are available here: https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs.

  • 770. What initial guidance has the Department of Labor (DOL) provided to help employers and employees understand their rights and duties under the Families First Coronavirus Response Act (FFCRA)?

    • The DOL released a series of frequently asked questions to help employers and employees understand their rights and obligations under the Families First Coronavirus Response Act.[1]

      The DOL FAQ provides that an employer is subject to the expanded paid sick leave and Family and Medical Leave Act (FMLA) rules if the employer has fewer than 500 full-time and part-time employees. The 500-employee threshold should be calculated each time an employee requests leave—creating a situation where some employees may be eligible, while employees who request leave at another time may be ineligible.

      Employees on leave and temporary employees should be included, while independent contractors are not included in the count, nor are employees who have been laid off or furloughed if they have not returned to work.

      Each corporation is usually a single employer. When a corporation has an ownership interest in another corporation, the two are separate employers unless they are joint employers for Fair Labor Standards Act purposes. Joint employer status is based on a facts and circumstances analysis, and is generally the case when (1) one employer employs the employee, but another benefits from the work or (2) one employer employs an employee for one set of hours in a workweek, and another employer employs the same employee for a separate set of hours in the same workweek.[2] Relevant factors might include: common management structure, interrelation between operations, centralized control of labor relations, and the degree of common ownership or control.

      For part-time and variable hour employees, the employee’s rate of pay during leave must be calculated using DOL guidance. Generally, if the employee has been employed at least six months, the employer uses 14 times the average number of hours the employee was scheduled to work each calendar day over the six-month period ending on the date the employee takes leave (including hours for which the employee took leave of any type).

      If a variable hour part-time employee had not been employed for six months (so the six-month averaging method cannot be used to calculate pay), the DOL directs the employer to use 14 times the number of hours the employee and employer agreed that the employee would work, on average, each calendar day, determined as of the day of hiring. If there was no agreement, the employer should use 14 times the average number of hours per calendar day that the employee was scheduled to work over the entire period of employment (including any hours for which the employee took leave of any type).[3]

      Under the FMLA expansion, overtime hours that an employee would normally work must be included in calculating pay. Under the paid leave extension, only 80 hours’ worth of paid sick leave must be provided.

      Under the emergency paid sick leave law, every employee is entitled to only one paid 80-hour period. The employee cannot first receive 80 hours pay for one valid reason (such as self-quarantine) and later receive another 80 hours for a second reason (such as to care for another). After the first 80 hours, the 10-week FMLA extension may be accessed.

      If an employer gave employees paid time off for a reason specified in the Act prior to its enactment, the employer cannot deny the employee the full 80 hours plus 10-weeks’ worth of paid leave once the law becomes effective. Although the law was technically supposed to become effective April 2, 2020, an April 1 effective date applied.

      Employees are eligible under the expanded FMLA rules if they have been employed for 30 calendar days prior to the day the leave will begin. This means that the employee was on the employer’s payroll for at least 30 calendar days (not necessarily that the employee has worked on 30 days). Days worked as a temporary employee count toward the 30-day requirement if the employer later hires the employee full-time.

      The DOL notes that small businesses who wish to use the under-50 employee exemption should document the reasons why, but not send any information to the DOL at this time. Further guidance on the issue will be released.

      _______________

      [1].      Available at: https://www.dol.gov/agencies/whd/pandemic/ffcra-questions.

      [2].      See DOL Fact Sheet: https://www.dol.gov/agencies/whd/flsa/2020-joint-employment/fact-sheet.

      [3].      Updated DOL FAQ, available at https://www.dol.gov/agencies/whd/pandemic/ffcra-questions.

  • 771. What documentation should employers request and keep with respect to the Families First Conronavirus Response Act (FFCRA) COVID-19 paid leave? Are there any reporting requirements? How does the employee request leave?

    • Editor’s Note: See heading below for information on W-2 reporting requirements for employers.

      To request leave, the employee must make a written request to the employer. Employees should follow an employer’s reasonable advance notice procedures, but the rule recognizes that advance notice may not be possible. Employers are not permitted to strictly require advance notice.

      The employee’s request (whether made by the employee or someone else, such as a family member if the employee is unable) must include:

      (1)  the employee’s name,

      (2)  dates for which leave is requested,

      (3)  a statement of the COVID-19 reason for requesting the leave, along with written documentation to support the claim and

      (4)  a statement from the employee that the employee is unable to work or telework for that reason.

      Documentation may include, for example, the name of the government entity issuing a quarantine order or the name of a healthcare professional who has recommended self-quarantine (and if someone who the employee is caring for is subject to the order, the name of that person and relation to the employee). If the leave is because of childcare obligations, the documentation should include the child’s name, as well as information about the school or childcare provider that is closed or unable to provide care. The employee should also include a representation that no other suitable person capable of caring for the child was available.

      The employer should maintain documentation sufficient to show how the employer calculated the credit (including, for example, the wage information and records of hours worked). The employer should keep copies of any Form 7200, Advance of Employer Credits Due to COVID-19, that have been submitted to the IRS, as well as copies of the employer’s Form 941, Employer’s Quarterly Federal Tax Return.

      The IRS recommends keeping all documentation for at least four years after the later of when the taxes are due, or when they are paid.

      Employer W-2 Reporting

      IRS guidance requires employers to report FFCRA payments on employees’ Form W-2. The IRS guidance provides important clarity for self-employed taxpayers. Self-employed taxpayers can claim a tax credit for FFCRA sick leave amounts. If they receive any FFCRA pay as an employee, they must reduce their credit amount by the amount paid by the employee.  Because of this, employers are required to separately state the paid leave portion of employee compensation on their Form W-2, in Box 14.

      The employer must label the income reported as (or use similar language) “sick leave subject to $511 per day limit,” “sick leave subject to $200 per day limit,” or “emergency family leave wages,” depending upon why the employee took leave.

      The employer can also report the FFCRA pay on a separate statement included with the employee’s W-2 for 2020. If the W-2 is provided electronically, the separate statement must be provided in the same manner and at the same time.[1] Model language for employers is provided in Notice 2021-53.

      [1].      See Notice 2020-54.

  • 772. Can an employee be denied the additional paid sick leave under the Families First Coronavirus Response Act (FFCRA)? Can an employer permit non-traditional pay situations?

    • Editor’s Note: The FFCRA paid leave requirements expired at the end of 2020.  Employers who continue to offer COVID-related paid leave remain eligible for a tax credit in 2021.  The rules discussed below generally applied only for the 2020 tax year.

      Editor’s Note: In early August, a New York federal court[1] vacated four Department of Labor (DOL) rules implementing the Families First Coronavirus Response Act (FFCRA) paid leave provisions, as follows:

      1. The court struck down the DOL “work availability” rule, meaning that employers may now be eligible for paid leave even if there is no work available (assuming the employee otherwise meets one of the requirements for receiving paid leave).
      2. The court vacated the DOL definition of “healthcare provider”, which is important because employers are permitted to exclude healthcare providers from coverage under the paid leave law.  Healthcare employers will now be required to consider exclusion from FFCRA eligibility on a case-by-case basis based on the individual employee’s job duties.
      3. The DOL “intermittent leave” rules were also partially invalidated.  Now, New York employers cannot require employees to gain consent for intermittent leave.  This is especially important for employees who may be counting on paid leave to provide flexibility now that some schools are opening on reduced or hybrid schedules.
      4. Finally, the court ruled that employers cannot condition FFCRA leave on advance employee documentation of the details leading to the need for paid leave.

      This ruling impacted employers located in New York. The rules below generally continued to apply even after the court decision.

      Employers may deny paid leave to employees who have not provided requested documentation to support their claim. Documentation requirements include the employee’s name, requested leave dates, reason for leave and a statement that the employee is unable to work or telecommute. Other documentation will depend upon the reason for the leave, and can include the notice of school closure or a health provider’s written order to quarantine.  Further, all existing FMLA certification requirements remain in effect with respect to the ten-week FMLA period.

      According to the DOL FAQ, employees could take their leave intermittently to provide for childcare while also telecommuting. If the employer agrees, intermittent leave can be provided in any increments—even to allow for breaks in the day for a parent to provide childcare. The DOL provides the following example: If employer and employee agree on a 90-minute increment, the employee could telework from 1:00 PM to 2:30 PM, take leave from 2:30 PM to 4:00 PM, and then return to teleworking.

      Unless teleworking, paid sick leave must generally be taken in full day increments if the leave is taken because the individual is sick or caring for someone sick. In these cases, leave must be taken until the full amount is used up or there is no longer a valid reason to take paid sick leave (in recognition of the fact that the leave is designed to prevent the spread of the virus). Leave, under these circumstances, remains available if not taken until the end of 2020 if the employee has a qualified reason.


      Planning Point: On a related note, EEOC guidance clarifies that employers who have permitted employees to work remotely during the pandemic are not required to continue to permit telework indefinitely.  Some employers have changed the essential job functions of employees to provide flexibility and accommodate telework in the wake of the pandemic.  Generally, the Americans with Disabilities Act requires employers to make reasonable accommodations to permit employees to complete their essential job functions.  The EEOC guidance clarifies that the rules haven’t changed, so that employers are not required to continue to permit telework as a “reasonable accommodation” under the law.  However, an employee’s ability to successfully complete all essential job requirements remotely may be a factor in considering whether a request for remote work is reasonable.


      For childcare reasons, intermittent leave is permissible even if the employee cannot telecommute (for example, leave can be taken on Monday, Wednesday and Friday, while the employee reports for work on Tuesday and Thursday) so long as employer and employee agree.

      FFCRA leave (and available tax credits) applies only for periods beginning April 1, 2020[2]—even if the employer closed prior to that date for coronavirus-related reasons, employees are not eligible. Similarly, if the employer is closed entirely, employees are not eligible for FFCRA leave and must resort to unemployment benefits. If the employer closes while the employee is already on FFCRA leave, the employer must pay any leave already taken under the Act. However, once the employer closes, the employee is no longer available for sick leave benefits.

      Furloughed or laid off employees similarly do not qualify for sick leave, nor do sick leave hours become available to make up for reduced hours due to lack of work (even if caused by COVID-19). If a qualifying reason (like providing childcare) causes the reduced hours, then FFCRA paid sick leave can be used to make up the difference.

      School Reopening Guidance

      The DOL FAQ offered insight into how a school’s reopening plans impacted employees’ right to FFCRA paid leave.  The DOL examined various scenarios and provided clarification on each.

      If the child’s school remains closed to in-person instruction (so that only remote learning is offered), the employee generally has a qualifying reason to take FFCRA leave.

      If the school offers a hybrid program, so that students attend school in-person on certain days and receive remote instruction on other days, employees have a qualifying reason, but only with respect to the days that their children are not eligible for in-person instruction.  This is likely true even if the school is only open to in-person instruction for certain hours of each day.

      If it is completely up to the family whether to send the child to school every day or keep the child home for remote instruction, the employee does not have a qualifying FFCRA leave reason.  This is true regardless of whether the family keeps the child home out of fear of contracting COVID-19.


      Planning Point: Under all scenarios, if someone else is available to care for the child even when the school is closed, the employee does not have a qualifying reason to take leave.  As a result, employers may wish to ask about the availability of an employee’s usual childcare provider if school is closed on certain days or for certain hours of each day.


      Summer FFCRA Guidance

      FFCRA leave is generally available to parents who cannot work because of childcare needs when the child’s usual place of care or school is closed or unavailable due to COVID-19.  After schools closed for summer, many questioned their eligibility based on cancellations for summer camps, summer enrichment programs or other childcare alternatives.

      The DOL has clarified its original guidance to provide that an employee’s mere interest in a summer program that was cancelled is insufficient to establish FFCRA eligibility. If the child was already enrolled in a program or care option that was cancelled, the parent may be FFCRA eligible. Enrollment in prior summers or other evidence showing that it was “more likely than not” that the child would have participated in the program absent COVID-19 may be sufficient. Submission of applications, payment of required deposits or other evidence of planned participation typically must be provided to support eligibility for FFCRA leave.

      The DOL has confirmed that this is a fact-intensive inquiry and there is no “one size fits all” approach to determining FFCRA eligibility. Parents must specifically identify the program that was cancelled and provide a statement that no other suitable childcare is available.[3]

      ____________

      [1]      State of New York vs. United States Department of Labor, 20-CV-3020 (filed August 3, 2020).

      [2].     Notice 2020-21.

      [3].     DOL Field Assistance Bulletin No. 2020-4.

  • 773. What is the small business exemption to the requirement that employees provide paid leave under the Families First Coronavirus Response Act (FFCRA)?

    • Editor’s Note: The FFCRA paid leave requirements expired at the end of 2020.  Employers who continue to offer COVID-related paid leave remain eligible for a tax credit in 2021.  The rules discussed below generally applied only for the 2020 tax year.

      Generally, business owners with fewer than 50 employees can claim an exemption from the paid sick leave and expanded Family and Medical Leave Act (FMLA) laws if they can show that payment would jeopardize their business as a going concern.  DOL FAQ provided guidance on the details.

      Businesses only qualified for the exemption with respect to an employee taking leave to care for children because of COVID-19.  Other COVID-19 related reasons were covered by the narrow exemption. A business qualified if one of the following three conditions was satisfied:

      1. providing leave would result in the small business expenses and financial obligations exceeding available business revenues, causing the business to stop operating at minimal capacity,
      2. absence of the employee requesting leave would result in a substantial risk to the financial health or operational capabilities of the small business because of their specialized skills, knowledge of the business, or responsibilities; or
      3. there are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee requesting paid leave, and these labor or services are needed for the small business to operate at a minimal capacity,1

      Generally, these conditions limited availability of the very small business exemption more than many business owners had expected. Employers could not use the small business exemption if the leave was necessary because the employee was (1) seeking, or has obtained, a COVID-19 diagnosis, (2) subject to a quarantine or self-isolation order, (3) caring for an individual with COVID-19 or (4) experiencing any substantially similar condition.

       

      [1].             DOL FAQ #59, available at https://www.dol.gov/agencies/whd/pandemic/ffcra-questions#59

  • 774. What details has the Department of Labor (DOL) released about an employer’s responsibility to provide notice of the Families First Coronavirus Response Act (FFCRA)?

    • The DOL has released a notice that all employers must conspicuously post to give employees information about federal relief efforts related to COVID-19.  The notice may now be emailed and posted on the employer’s website.  The most recent notice, which may be updated periodically, is available here: https://www.dol.gov/agencies/whd/posters.

      The DOL, in frequently asked questions about the notice requirements,[1] notes that when employees are working remotely, employers can email or mail the relevant notices, which are expected to be updated from time to time.  Employers should check the DOL website periodically to obtain the most recent information.

      The notice must be provided to all current employees (including new hires, but not job applicants), and only must be provided in English absent future guidance.

      All employers covered by the expanded leave laws (those with under 500 employees) must post the notice somewhere that employees are likely to see it, such as in a break room or lunchroom.  If employees work in multiple buildings, the notice must be conspicuously posted in each.  However, when employees generally report to a main office and later disburse to various worksites, the employer must only post the notice in the main office.

      ______________

      [1]      Available at: https://www.dol.gov/agencies/whd/pandemic/ffcra-poster-questions.

  • 775. What happens when the employee has exhausted the paid time off under the Families First Coronavirus Response Act (FFCRA)? Does the employee have the right to return to work?

    • The FFCRA prohibits employers covered by the new law from retaliating or otherwise discriminating against employees who qualify for paid sick leave or paid childcare leave.  While the employer must generally restore the employee to the same or similar position on returning to work, this rule only applies if the position would still exist if the employee had not taken leave.  In other words, the expanded leave law does not protect the employee from layoffs or action that would have occurred regardless of the leave.

      Exceptions exist for key employees and very small employers with fewer than twenty-five employees.  The exception allows employers to refuse returning highly compensated “key employees” to work in the same position under certain circumstances.[1]

      If the employer has fewer than twenty-five employees, the employer may not be obligated to allow the employee to return to work in the same (or similar) position if the employee took leave to care for a child whose school or place of care was closed, or whose child care provider was unavailable, and all four of the following hardship conditions exist:

      1. the position no longer exists due to economic or operating conditions that affect employment and due to COVID-19 related reasons during the period of leave;
      2. the employer makes reasonable efforts to restore the employee to the same or an equivalent position;
      3. the employer makes reasonable efforts to contact the employee if an equivalent position becomes available; and
      4. the employer continues to make reasonable efforts to contact the employee for one year beginning either on the date the leave related to COVID-19 reasons concludes or the date 12 weeks after the leave began, whichever is earlier.[2]

      __________________

      [1]      Based on the FMLA definition of “key employee”.

      [2]      See DOL FAQ, available at https://www.dol.gov/agencies/whd/pandemic/ffcra-questions#62.

  • 776. Are the triggers for Families First Coronavirus Response Act (FFCRA) paid sick leave and expanded Family and Medical Leave Act (FMLA) leave the same?

    • No.  Upon first glance, the new paid leave requirements under the FFCRA seem to provide twelve weeks of paid (or partially paid) time off for most employees who work for businesses with under 500 employees.  However, the benefit triggers differ depending on whether the employee is claiming (1) eighty hours paid sick leave or (2) expanded relief under the FMLA.

      Under the paid sick leave law, employees qualify for either full or 2/3 wage benefits if they:

      1. are subject to a government quarantine or isolation order,
      2. have been advised by a healthcare provider to self-quarantine due to COVID-19,
      3. are experiencing symptoms of COVID-19 and seeking a medical diagnosis,
      4. are caring for an individual who is subject to a quarantine or isolation order or has been advised by a healthcare provider to self-quarantine,
      5. are caring for a child whose school or place of care has been closed or whose childcare provider is unavailable due to COVID-19 precautions,
      6. are experiencing any other substantially similar condition specified by the Secretary of Health & Human Services in consultation with the Treasury and the Secretary of Labor.

      Conversely, employees are only entitled to take advantage of the FMLA paid leave provisions over the remaining 10-week period if the employee is unable to work or telecommute because a child’s school or childcare provider is closed due to COVID-19.