On April 21, 2021, President Joe Biden announced a paid-leave tax credit for employers that provide full pay for employees who take time off to get and recover from the COVID-19 vaccination. This tax credit is an effort to encourage more widespread vaccinations. “Providing paid time off for vaccinations is an investment in the safety, productivity, and health of an employer’s workforce and their community,” according to a White House press statement.
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The tax credit is available to organizations with fewer than 500 employees and covers up to $511 per day for each vaccinated employee. The leave taken must be for the period from April 1, 2021, through September 30, 2021. The tax credit is funded through an existing program under the American Rescue Plan (ARP) that provides tax credits related to voluntarily-provided paid leave for certain COVID-19-related reasons. Below is some available guidance as it relates to these tax credits.
An eligible employer is any business, including a tax-exempt organization, with fewer than 500 employees. An eligible employer also includes a governmental employer, other than 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. Self-employed individuals are eligible for similar tax credits.
The number of tax credits and how they are calculated Paid leave credits under the ARP are tax credits against the employer’s share of the Medicare tax. The tax credits are refundable, meaning the employer is entitled to payment of the full amount of the credits if it exceeds the employer’s share of the Medicare tax.
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Tax credit for paid sick leave wages is equal to the sick leave wages paid for COVID-19 related reasons for up to 2 weeks (80 hours), limited to $511 per day and $5,110 in aggregate, at 100% of the employee’s regular rate of pay. The tax credit for paid family leave wages is equal to the family leave wages paid for up to 12 weeks, limited to $200 per day and $12,000 in the aggregate, at 2/3rds of the employee’s regular rate of pay. The amount of these tax credits is increased by allocable health plan expenses and contributions for certain collectively-bargained benefits, as well as the employer’s share of social security and Medicare taxes paid on the wages (up to the respective daily and total caps).
Eligible employers may claim tax credits for sick and family leave paid to employees, including leave taken to receive or recover from COVID-19 vaccinations, for leave from April 1, 2021, through September 30, 2021.
Eligible employers report their total paid sick and family leave wages (plus the eligible health plan expenses and collectively bargained contributions and the eligible employer’s share of social security and Medicare taxes on the paid leave wages) for each quarter on their federal employment tax return, usually Form 941, Employer’s Quarterly Federal Tax Return.
In anticipation of claiming the credits on the Form 941, eligible employers can keep the federal employment taxes that they otherwise would have deposited; including federal income tax withheld from employees, the employees’ share of social security and Medicare taxes, and the eligible employer’s share of social security and Medicare taxes with respect to all employees up to the amount of credit for which they are eligible. The Form 941 instructions explain how to reflect the reduced liabilities for the quarter related to the deposit schedule.
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If an eligible employer does not have enough federal employment taxes set aside for deposit to cover amounts provided as paid sick and family leave wages (plus the eligible health plan expenses and collectively bargained contributions and the eligible employer’s share of social security and Medicare taxes on the paid leave wages), the eligible employer may request an advance of the credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. The eligible employer will account for the amounts received as an advance when it files its Form 941 for the relevant quarter.
Self-employed individuals may claim comparable tax credits on their individual Form 1040, U.S. Individual Income Tax Return.
If you are looking to find out how this tax credit can help you, contact someone from our ERTC task force to assist.