Tax Credits Available for Small Businesses Offering PTO for COVID Vaccine

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This week, the IRS and the U.S. Department Treasury announced that under the American Rescue Plan Act of 2021, small and midsize businesses may claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19.  This includes leave for employees receiving and recovering from COVID-19 vaccines. 

Although just announced this Wednesday, the tax credits are available to eligible employers for leave paid from April 1, 2021 to September 30, 2021.  An eligible employer is any employer with fewer than 500 employees, including tax-exempt organizations.  This also includes governmental employers and self-employed individuals.

The goal of this plan is for employers to encourage their employees to get vaccinated against COVID-19. Studies have shown that it is better for employers to encourage the vaccine, rather than outright require it.  This is due in part to the confusion surrounding whether employers are even permitted to make the vaccination mandatory. To avoid disability and discrimination issues, experts recommend that businesses instead merely encourage their employees to receive the vaccine.

Under the ARP, eligible employers could receive tax credits up to $17,110 per employee who takes paid sick leave due to the coronavirus.  Applicable reasons include:

  • Illness;
  • Quarantine;
  • Getting tested;
  • Receiving the vaccine; and
  • Recovering from the vaccine.

Similar to the provisions of the Families First Coronavirus Response Act (FFCRA), the new tax credit law also includes a provision for caregivers taking care of an individual for any of the above-listed reasons.

The tax credit for paid sick leave wages is equivalent to the sick leave wages paid for COVID-19 related reasons under the FFCRA.  It provides for up to two weeks (80 hours), limited to $511 per day and $5,100 overall at an employee’s full rate of pay.  The credit offered for paid family leave wages provides for up to 12 weeks at $200 per day, not to exceed $12,000 total, at a rate of 2/3rds of an employee’s regular rate.

For employers looking to take advantage of this opportunity, they must report their total paid sick and family leave wages for each quarter on their federal employment tax return.  Self-employed individuals looking to claim these tax credits may do so on their individual income tax returns.

According to studies conducted by the White House, the paid-leave provisions put in place last year prevented about 400 COVID-19 cases each day.  It is hopeful that the refundable tax credit addition to the ARP will help to increase these numbers even further.

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