Employers may be reimbursed for leave taken by employees to get the COVID-19 vaccine, thanks to the American Rescue Plan Act of 2021. Employers may also be reimbursed for leave needed by employees to recover from the vaccination.
The ARP also allows those employers to be reimbursed for the cost of providing paid sick and family leave for employees for illness related to COVID-19.
Tax Credits for Giving Employees Paid Time Off for COVID Vaccines
The reimbursements are in the form of refundable tax credits.
Here are the basics:
- You must be a small or midsize employer with fewer than 500 employees.
- Certain government employers may also qualify, other than the federal government.
- Self-employed individuals are also eligible for similar tax credits.
- Tax-exempt organizations with fewer than 500 employees may be eligible.
- The ARP tax credits are available to eligible employers that pay sick and family leave from April 1, 2021 through September 30, 2021.
Paid Sick and Family Leave Eligible for Tax Credits
Eligible employers are entitled to tax credits for wages paid for leave taken by employees who are not able to work or telework due to reasons related to COVID-19. That includes leave taken to receive COVID–19 vaccinations or to recover from any injury, disability, illness or condition related to the vaccinations. These tax credits are available for wages paid for leave from April 1, 2021, through September 30, 2021.
Retail grocery ALDI U.S. was among the first to respond, as CEO Jason Hart said in a company press release.
“Since the onset of the pandemic, our entire ALDI team has worked to keep stores safe and stocked, and serve communities without interruption,” Hart said. “Providing accommodations so employees can receive this critical vaccine is one more way we can support them and eliminate the need to choose between earning their wages and protecting their well-being.”
How Amount of Tax Credit is Calculated
The paid leave credits under the ARP are tax credits against the employer’s share of the Medicare tax. The tax credits are refundable, which means that the employer is entitled to payment of the full amount of the credits if it exceeds the employer’s share of the Medicare tax.
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). It is limited to $511 per day and $5,110 in the aggregate, at 100 percent 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 twelve 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).
How to Claim the Credit
Eligible employers report their total paid sick and family leave wages for each quarter on the federal employment tax return (usually Form 941). The employers also report 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.
Form 941 is used by most employers to report income tax and social security and Medicare taxes withheld from employee wages. Form 941 is also used to report the employer’s own share of social security and Medicare taxes.
In anticipation of claiming the credits on the Form 941 PDF, eligible employers can keep the federal employment taxes that they otherwise would have deposited. That includes:
- Federal income tax withheld from employees
- The employees’ share of social security and Medicare taxes
- The eligible employer’s share of social security and Medicare taxes.
That is calculated with respect to all employees up to the amount of credit for which they are eligible. The Form 941 instructions PDF, available on the IRS website, explains how to reflect the reduced liabilities for the quarter related to the deposit schedule.
What if the Numbers Don’t Work?
What 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)?
If that’s the case, 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, Employer’s Quarterly Federal Tax Return, for the relevant quarter.