Analysis of Sick Leave Wages & Credits for Claiming the Employee Retention Credit (ERC)

Sick Leave Wages & Credits

Executive Summary

As a seasoned United States Tax Attorney with extensive experience in U.S. tax credits, IRS regulations, Treasury Tax Codes, and the Internal Revenue Code (IRC), my expertise encompasses a deep understanding of the complexities surrounding the Employee Retention Credit (ERC), including the intricacies of Sick Leave Wages and associated credits. This document aims to provide a comprehensive analysis of the tax codes, regulations, and legislative frameworks relevant to Sick Leave Wages and Credits within the scope of claiming the ERC. It integrates pertinent IRS sections, Congressional laws, and Treasury Tax Codes to equip businesses with the necessary insights for navigating this facet of the ERC.

Introduction to Sick Leave Wages & Credits

Sick Leave Wages, particularly in the context of the ERC, refer to wages paid to employees who are unable to work due to health-related conditions, including those specified under COVID-19 guidelines. The associated credits are designed to incentivize employers to retain and compensate employees under these circumstances.

Legislative and Regulatory Framework

  • Families First Coronavirus Response Act (FFCRA): Enacted in March 2020, the FFCRA introduced paid sick leave and expanded family and medical leave for reasons related to COVID-19, along with corresponding tax credits for employers.
  • Coronavirus Aid, Relief, and Economic Security (CARES) Act: Introduced the ERC, providing a framework for additional financial support to employers, including those offering sick leave wages as mandated by the FFCRA.
  • Consolidated Appropriations Act, 2021: Expanded and extended the availability of the ERC, including provisions that affect the calculation and claim process for employers providing sick leave wages.
  • American Rescue Plan Act of 2021: Further extended the ERC and introduced additional provisions for sick leave wages and credits, enhancing the support available to employers.

Relevant Tax Codes and Regulations

  • Internal Revenue Code Section 3134: Details the ERC, including eligibility criteria and calculation methods, and outlines the interplay between ERC claims and FFCRA-required sick leave wages.
  • IRS Notice 2021-20, IRS Notice 2021-49, and subsequent guidance: Provide clarifications on the ERC, including specific considerations for employers claiming credits for sick leave wages.

Sick Leave Wages & Credits Test

The Sick Leave Wages & Credits test for claiming the ERC involves several key considerations:

1. Eligibility of Wages: Employers must determine the eligibility of sick leave wages for the ERC. This includes wages paid under the FFCRA mandates for COVID-19 related reasons.

2. Calculation of Credits: The amount of credit available for sick leave wages is influenced by the specific provisions of the FFCRA and subsequent legislative acts, requiring careful calculation to ensure compliance and maximize benefits.

3. Coordination with Other Credits: Employers must navigate the coordination of sick leave wages credits with other available credits, including ensuring that there is no double benefit for the same wage payments.

Compliance Strategies

To effectively manage the Sick Leave Wages & Credits test for the ERC, employers should:

1. Maintain Comprehensive Records: Keep detailed documentation of all sick leave wages paid, including the reasons for the leave and the amount of credit claimed.

2. Understand Interplay with FFCRA: Gain a thorough understanding of how FFCRA-mandated sick leave wages interact with ERC eligibility and credits.

3. Consult Updated IRS Guidance: Regularly review the latest IRS notices and guidelines related to the ERC and sick leave wages to stay informed of any changes or clarifications.

4. Engage Professional Assistance: Consider consulting with tax professionals or legal advisors to navigate the complexities of claiming credits for sick leave wages, ensuring compliance with current regulations and maximizing the benefits available.


Navigating the Sick Leave Wages & Credits test for claiming the ERC presents a nuanced challenge for employers, requiring a detailed understanding of the legislative and regulatory landscape. By adhering to the outlined compliance strategies and maintaining a proactive approach to understanding the interplay between sick leave wages and the ERC, employers can ensure they are maximizing their potential benefits while adhering to federal guidelines. Given the evolving nature of tax law and IRS regulations, ongoing consultation with tax professionals is recommended to adapt to changes and secure the full advantages of the ERC program.

This report is based on the regulatory and legislative understanding as of April 2023. For the most current information and guidance, direct consultation with the IRS or a qualified tax professional is advisable.

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This information is provided for general guidance and is not intended as professional tax or legal advice. Please consult a tax professional for specific advice regarding Sick Leave Wages and associated credits under ERTC.


1. What qualifies as sick leave wages under ERTC?

Sick leave wages are payments made to employees who are unable to work due to COVID-19 related illness or quarantine, qualifying for ERTC.

2. Are health plan expenses included in sick leave wages for ERTC?

Yes, employer-paid health plan expenses can be included as part of sick leave wages when calculating ERTC.

3. Can I claim ERTC for sick leave wages paid to all employees?

You can claim ERTC for sick leave wages paid to employees who are unable to work due to COVID-19 related reasons, as specified by the IRS guidelines.

4. What documentation is needed for claiming sick leave wages under ERTC?

You need to keep detailed records of wages paid, the reason for the leave, and any supporting medical or quarantine documentation.

5. How are sick leave wages calculated for ERTC?

Sick leave wages are calculated based on the employee’s regular rate of pay, up to a specified daily limit, and the number of qualifying leave days.

6. Can sick leave wages be included if they were used for PPP loan forgiveness?

No, wages that were used to qualify for PPP loan forgiveness cannot be double-counted as sick leave wages for ERTC purposes.

7. What is the maximum amount of sick leave wages per employee for ERTC?

The maximum amount is capped at a daily and aggregate limit as defined by the IRS, depending on the specific circumstances of the leave.

8. Are part-time employees’ sick leave wages eligible for ERTC?

Yes, sick leave wages paid to part-time employees are eligible if they meet the ERTC requirements.

9. How long do I have to claim ERTC for sick leave wages?

You generally have three years from the date you filed the original payroll tax return to claim the ERTC for sick leave wages.

10. Where can I find more information about claiming sick leave wages under ERTC?

More information can be found on the IRS website or by consulting with a tax professional who specializes in ERTC claims.

These tags and FAQs will provide comprehensive information and guidance on Sick Leave Wages and associated credits under the Employee Retention Tax Credit.

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