The American Rescue Plan Act of 2021 (“ARP”) allows certain employers to claim refundable tax credits to reimburse them for leave taken by employees to receive or recover from COVID-19 vaccinations. These tax credits are available to eligible employers that pay sick and family leave for this purpose from April 1, 2021 through September 30, 2021.
Eligible employers include any business, including tax-exempt organizations, with fewer than 500 employees. An eligible employer also includes a governmental employer, other than the federal government and any agency or instrumentality of the federal government, that is not an organization described in section 501(c)(1) of the Internal Revenue Code. Self-employed individuals are eligible for similar tax credits.
Paid Sick and Family Leave 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, including leave taken to receive COVID-19 vaccinations or to recover from any injury, disability, illness, or condition related to the vaccinations. Again, these tax credits are available for wages paid for leave from April 1, 2021 through September 30, 2021. The paid leave tax credit will offset the cost for businesses and nonprofits with fewer than 500 employees for up to 80 hours (10 workdays) up to $511 per day of paid sick leave offered during that period.
Calculation of Tax Credits
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), 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 12 weeks, limited to $200 per day and $12,000 in the aggregate, at two-thirds 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).
Claiming the Tax Credit
Eligible employers report their total 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) for each quarter on their federal employment tax return, usually on Form 941, Employer’s Quarterly Federal Tax Return. Form 941 is used by most employers to report income tax and social security and Medicare taxes withheld from employee wages, as well as the employer’s own share of social security and Medicare taxes.
In anticipation of claiming the credits on Form 941, 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. The Form 941 instructions explain how to reflect the reduced liabilities for the quarter related to the deposit schedule.
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), 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. Self-employed individuals may claim comparable tax credits on their individual Form 1040, U.S. Individual Income Tax Return.
This article was written and edited from content provided by United Benefit Advisors, which is a national partnership of independent employee benefit advisors that includes GriffinEstep Benefit Group. The information contained in this article is general and is provided for educational purposes only. It is not intended to provide legal or tax advice. You should not act on this information without consulting your own legal counsel and/or other knowledgeable advisors.
Dane Scalise is an experienced insurance and legal advisor, advocate, and consultant. As General Counsel and Insurance Broker for GriffinEstep Benefit Group, he helps people and businesses find creative and intelligent insurance solutions. Established in 1998, GriffinEstep is a leading independent, full-service insurance brokerage company with a team of consultants dedicated to clients, not insurance companies. GriffinEstep provides a unique combination of national expertise and local presence along with the knowledge, insight, and technology necessary to customize the individual insurance needs of its valued clients.
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