IRS Issues Guidelines on Tax Credits for Businesses that Provide PTO for Vaccinations

The American Rescue Plan Act of 2021 (ARP) allows any business, including a tax-exempt organization, with fewer than 500 employees to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19, including leave taken by employees to receive or recover from COVID-19 vaccinations. The Internal Revenue Service (IRS) recently issued guidelines on this tax credit.

Paid sick and family leave for which tax credits can be claimed

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, including 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.

The amount of the tax credits and how they are calculated

The paid leave credits under 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), limited to $511 per day and $5,110 in the aggregate, at 100% of the employee’s regular rate of pay.

Claiming the Credit

Eligible employers report their total paid sick and family 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 Form 941, eligible employers can keep the federal employment taxes 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.

*This information simplifies complex Acts as it is understood by Time Equipment Company. It is not to be taken as legal advice. The regulations for this program are changing. For further information about the American Rescue Plan Act, please visit www.irs.gov.