Tax credits available to small employers to provide paid leave to employees receiving COVID-19 vaccines

The IRS and the U.S. Treasury Department recently announced further details of tax credits available under the American Rescue Plan Act of 2021 (ARPA) to help small businesses, including providing paid leave for employees receiving COVID-19 vaccinations.

The additional details, provided in this fact sheet, spell out some basic facts about the employers eligible for the tax credits. It also provides information on how these employers may claim the credit for leave paid to employees related to COVID-19 vaccinations.

Eligible employers, such as businesses and tax-exempt organizations with fewer than 500 employees, and certain governmental employers, can receive a tax credit for providing paid time off for each employee receiving the vaccine, and for any time needed to recover from the vaccine. For example, if an eligible employer offers employees a paid day off in order to get vaccinated, the employer can receive a tax credit equal to the wages paid to employees for that day (up to certain limits).

ARPA allows small- and mid-size employers, and certain governmental employers, 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. Self-employed individuals are eligible for similar tax credits. The ARPA tax credits are available to eligible employers that pay sick and family leave for leave from April 1, 2021, through Sept. 30, 2021.

The paid leave credits under ARPA 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.

In anticipation of claiming the credits on Form 941, Employer’s Quarterly Federal Tax Return, 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. If the eligible employer does not have enough federal employment taxes on deposit to cover the amount of the anticipated credits, the eligible employer may request an advance by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. Self-employed individuals may claim comparable credits on Form 1040.

The Intuit® Tax Pro Center has a variety of articles related to COVID-19 to help you guide your clients on tax and accounting matters.