The Internal Revenue Service and the Treasury Department on Wednesday detailed a plan that will allow small and midsized businesses to claim tax credits for providing paid leave for employees to get COVID-19 vaccinations.
Eligible employers, which include businesses with fewer than 500 employees and certain governmental employers, can receive a tax credit for providing paid time off for each employee to receive the vaccine and for any time needed to recover from the vaccine.
“This new information is a shot in the arm for struggling small employers who are working hard to keep their businesses going while also watching out for the health of their employees,” said IRS Commissioner Chuck Rettig.
The new tax credits are a part of the $1.9 trillion American Rescue Plan Act of 2021, which was signed into law in March.
In addition, the White House announced that it has expanded upon the IRS credit announcement, and will enable employers with fewer than 500 employees to claim up to $17,110 for 14 weeks of paid leave for each impacted employee not only to get vaccinated, but also to take time off if they have COVID-19 symptoms and are going to the doctor; are getting tested for COVID-19; are under quarantine or isolation order by the government or a doctor (or are caring for someone who is); or have to care for a child whose school or child care provider closed due to COVID-19.
Paid leave has been shown to be a critical tool for stopping the spread of COVID-19, including one study that showed that the paid leave provisions put in place last year prevented approximately 400 COVID-19 cases per day and prevented one COVID-19 case per day per 1,300 workers, the White House said.
The ARP tax credits are available to eligible employers that pay sick and family leave for leave from April 1, 2021, through Sept. 30, 2021.
These credits count against the employer's Medicare tax, and they are refundable, which means that the employer is entitled to receive the full amount of the credits, if that amount exceeds what the employer would otherwise pay in Medicare taxes.
In anticipation of claiming the credits on their quarterly tax returns, 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.
To calculate the tax credit:
• The tax credit for paid sick leave wages is equal to the sick leave wages paid for COVID-19-related reasons for up to two weeks (80 hours), and is limited to $511 per day, 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, at two-thirds of the employee's regular rate of pay.
• Employers can also receive credit for eligible health plan expenses and collectively bargained contributions, and the employer's share of Social Security and Medicare taxes on the paid leave wages.
More information is available at the IRS website.