The American Rescue Plan Act, enacted March 11, 2021, aims to deliver economic relief to families and workers. On April 21, President Biden announced a provision of the American Rescue Plan Act that allows eligible employers to claim refundable tax credits for providing emergency paid sick leave to employees who take time off for reasons due to COVID-19, including to obtain a COVID-19 vaccination or to recover from adverse side effects after receiving the vaccine.
The tax credit provides an incentive to individuals in the workforce to receive their vaccination.
The tax credit will fully offset the cost for employers to provide paid leave for employees to receive and recover from the vaccinations, ensuring that small businesses and their workers will not be impacted financially by the increase of leave time.
Which employers are generally eligible to claim the Paid Leave Credit?
Employers eligible to claim the credit include any business or tax-exempt organization with fewer than 500 employees. Governmental employers excluding the “federal government and any agency or instrumentality of the federal government that is not an organization described in section 501(c)(1) of the Internal Revenue Code” are also eligible. Similar credits are also available for self-employed individuals.
These eligible employers may claim the tax credits for paid leave taken by employees to receive the vaccine, recover from injury, illness, or condition related to the vaccine, as well as other reasons related to COVID-19 including to acquire or wait for the results of a diagnostic test and quarantining due to exposure to the virus. The credit is applicable to qualifying sick and family leave from April 1, 2021 through September 30, 2021.
How to Claim the Paid Leave Credit
The tax credits under the American Rescue Plan are refundable credits against the employer’s share of the Medicare tax.
Eligible employers may claim tax credits for wages up to 80 hours of paid sick leave in an amount equal to either:
(1) the employee’s regular wage, capped at $511 per day, up to a total of $5,110 if the employee was sick or quarantining, awaiting the results of a COVID test, obtaining or recovering from a vaccine; or
(2) two-thirds of the employee’s regular wage, limited to $200 per day, up to a total of $2,000, if the employee was taking time to care for someone quarantining or to provide care due to COVID-19 school or child care provider closures.
In addition to the tax credits for sick leave wages, eligible employers can claim tax credits for paid family leave. Employers may receive tax credits for up to twelve weeks of paid family leave provided to employees who cannot work for any of the reasons related to COVID. Those credits are equal to two-thirds of an employee’s regular wages, capped at $200/day up to a total of $12,000.
To claim these credits, employers must report the total amount of sick and family leave wages as well as their share of Medicare and social security taxes, eligible health plan expenses, and collectively bargained contributions on Form 941, Employer’s Quarterly Federal Tax Return.
Employers may reduce their federal income, social security, and Medicare tax liabilities by the amount they anticipate receiving from the credit and retain the taxes they would have deposited for those wages. To view this form and the instructions, including those regarding the reduced liabilities, click here. Employers may also file Form 7200, Advance Payment of Employer Credits Due to COVID-19, if they cannot cover amounts paid for qualifying sick leave wages.
These are challenging and unprecedented times. Blue & Co. is committed to walking with our clients through this crisis and providing as much information as we can. Please note that information is changing rapidly.
To further explore this opportunity, please reach out to your local Blue and Co. Advisor.