The American Rescue Plan Act of 2021 (ARP) allows small and midsize employers—even certain governmental employers—to claim tax credits that reimburse the cost of providing paid sick and family leave related to COVID-19 to their workers.
The refundable credits can include the leave taken by employees to receive or to recover from COVID-19 vaccinations. The credits are available for such leave from April 1 through September 30.
The IRS has released a fact sheet that gives additional details about the credits and the employers who qualify for them, as well as directions on how to claim the credits.
If an eligible employer offers employees a paid day off to get vaccinated, for example, the employer is qualified to get a tax credit that’s equal to the wages paid to the employees for that day. There are limits, of course.
“This new information is a shot in the arm for struggling small employers who are working hard to keep their businesses going while also watching out for the health of their employees,” said IRS Commissioner Chuck Rettig. “Our work on this issue is part of a larger effort by the IRS to assist the nation recover from the pandemic.”
The paid leave credits in the American Rescue Plan specifically target the employer’s share of Medicare tax. Since the credits are refundable, an eligible employer can be refunded the full amount of the credit if it’s more than the amount of their Medicare tax.
The IRS says the credits can be claimed on Form 941, Employer’s Quarterly Federal Tax Return, outlining two situations involving eligible employers:
The IRS closes the release by reminding that a comparable benefit is available to self-employed taxpayers, who would file Form 1040, U.S. Individual Income Tax Return to claim the credits.
Michael Coronado is the Vice President of Pronto Income Tax. When he’s not serving clients, he geeks out on current events and planning his next travel adventure.
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