In a recent announcement from the IRS and the Treasury Department, the American Rescue Plan (ARP) is issuing tax credits to help small businesses, including providing paid leave for employees receiving COVID-19 vaccinations.
Eligible employers (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 any employees receiving and/or recovering from the COVID-19 vaccine.
“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.”
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.
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.
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.