Employer Paid Sick and Family Leave Tax Credit for COVID-19 Vaccinations

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The American Rescue Plan Act of 2021 (ARP) allows small and midsize employers 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 IRS recently released guidance pursuant to the ARP’s extension of the paid sick and family leave credit, which now covers pay periods through September 30, 2021. Specifically, the tax credit can be claimed 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.

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 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).

The credit is generally claimed on Form 941, the quarterly federal employment tax return, with an advance credit available by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. In anticipation of claiming the credits on the 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.

Please contact your professionals at Lutz, Selig & Zeronda LLP for further details on claiming this benefit.