Small, midsize, and specific government employers are now able to claim refundable tax under the American Rescue Plan Act of 2021 (ARP). These refundable tax credits reimburse employers for the expenses of providing paid sick and family leave to their employees due to COVID-19. This includes any paid leave taken by employees to receive and/or recover from COVID-19 vaccinations. The ARP tax credits are available for leave from April 1, 2021 – September 30, 2021 and are available to any eligible employer that provides sick and family leave. Below is the information you need to know about eligibility and how employers can claim the credit.
Any business with fewer than 500 employees, including tax-exempt organizations, is considered an eligible employer. This also included government employers, with the exception of the federal government and any agency of the federal government not described in section 501(c)(1) of the Internal Revenue Code.
Employers deemed eligible are entitled to tax credits for wages paid to employees for leave taken due to COVID-19. This includes leave taken to receive and/or recover from COVID–19 vaccinations. The ARP tax credits are available for wages paid for leave from April 1, 2021 – September 30, 2021.
Tax Credits Amounts
The ARP tax credits are against the employer’s share of the Medicare tax and they are refundable. This means that eligible employers are entitled to payment of the full amount of the credits as long as it exceeds their share of the Medicare tax.
The credit amount for sick leave 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 credit amount 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.
Claiming the Credit
To claim credits, eligible employers must 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. 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.
Eligible employers can keep the federal employment taxes that they otherwise would have deposited in anticipation of claiming the credits on the Form 94. This includes 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.
For eligible employers that do not have enough federal employment taxes set aside for deposit to cover amounts provided as paid sick and family 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.