With the federal quarterly payroll tax deadline right around the corner, keep in mind that your business or nonprofit might qualify for tax credits to reimburse the cost of providing sick and family leave to employees due to COVID-19, including for vaccination.
The American Rescue Plan Act (ARPA), passed in March of 2021, made refundable tax credits available to eligible employers for COVID-19-related sick and family leave provided to employees between April 1, 2021, and September 30, 2021. As amended by the COVID-Related Tax Relief Act of 2020, the Families First Coronavirus Response Act had provided small and midsized employers refundable tax credits for COVID-19-related sick and family leave through March 31, 2021. (Note that the ARP does not mandate that employers offer paid leave.)
The tax credits apply to paid time off for employees who could not work because of COVID-19, including leave for employees to get vaccinated or recover from the vaccine’s effects. Organizations with fewer than 500 employees, including tax-exempt and non-federal governmental employers, are eligible to claim the credit. Self-employed individuals are eligible for similar tax credits.
Claiming the Credit
The paid leave credits are applied against the employer’s share of Medicare tax. However, because they are refundable, an eligible employer is entitled to payment of the full amount of the credits, even if it exceeds the employer’s share of the Medicare tax.
The total tax credit for paid sick leave wages to any employee is equal to the sick leave wages paid for COVID-19-related reasons up to two weeks (80 hours), limited to $511 per day and $5,110 in the aggregate, at 100% 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 12 weeks, limited to $200 per day and $12,000 in the aggregate, at two-thirds of the employee’s regular rate of pay.
Employers will claim the credit by reporting their total paid sick and family leave expenses on their federal employment tax return (in most cases, Form 941, Employer’s Quarterly Federal Tax Return). Since the objective of the credit is to ease the burden of providing sick and family leave, employers can keep the federal employment taxes that will apply to the credit rather than depositing them.
The IRS and the Treasury Department have released a fact sheet detailing these tax credits. The fact sheet includes some basic information about employer eligibility, and details on how eligible employers can claim the credit for paid leave provided to employees who miss work for reasons related to COVID-19 vaccinations.
To learn more about your business’s eligibility for this credit and the process for claiming it, please contact your CRI advisor.