Tax Credits for Employers Regarding COVID-19 Vaccinations and Recovery

On Wednesday, April 21, 2021, President Biden announced a tax credit for eligible employers that provide paid leave to employees who require time off related to COVID-19 vaccinations, including the recovery from any side effects. This tax credit is funded by the American Rescue Plan Act of 2021 (the approximate $1.9 trillion economic bill signed into law by President Biden on March 11, 2021). The Internal Revenue Service also recently issued a fact sheet to educate employers as to eligibility and how to claim the tax credit on their quarterly tax filings.

This tax credit flows from the American Rescue Plan Act. We now have more details regarding the way an eligible employer may claim tax credits. The American Rescue Plan Act provides eligible employers a tax credit to reimburse themselves for the cost of providing paid sick and family leave taken by employees as a result of COVID-19 if:

  1. the employer is a business with fewer than 500 employees;
  2. the employer opted to offer paid sick leave from April 1, 2021, through September 30, 2021; and
  3. the employer has employees requiring leave from work arising from receiving COVID-19 vaccinations or to recover from any injury, disability, illness, or other conditions related to the vaccinations.

The paid sick leave tax credit is an amount equal to the sick leave wages paid for COVID-19 related absences up to 80 hours (or two weeks), capped at $511 per day (or $5,110 in the aggregate 10-day period allotted for paid sick leave) at 100% of the employee’s regular wage. The paid family leave tax credit is an amount equal to the family leave wages paid for COVID-19 related absences up to 12 weeks, capped at $200 per day (or $12,000 in the aggregate 12-week period allotted for emergency paid family leave) at two-thirds (2/3) of the employee’s regular wage. The tax credit is increased by health plan expenses and the employer’s share of social security and Medicare taxes paid on the wages. Both paid leave credits are applicable against the employer’s share of the Medicare tax.

To claim the tax credit, eligible employers must report the total paid sick and family leave wages for each quarter on their federal employment tax return. The tax credits are also refundable. Accordingly, if an employer’s amount of credit exceeds the employer’s share of the Medicare tax, the employer will receive a refund for the excess. Self-employed individuals may also claim comparable tax credits on their individual income tax returns.

Finally, eligible employers without enough federal employment taxes set aside to cover paid sick and family leave wages may request an advance of the credits by filing Form 7200 and will account for those amounts received on the subsequent quarterly filing. 

For questions regarding the tax credits contact a member of Barrett McNagny's Labor and Employmentteam listed below. 

Barrett McNagny LLP

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