Employer Tax Credits for Paid COVID-19 Leave Includes Vaccination: The American Rescue Plan Act of 2021

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By Satya Yeruva

The American Rescue Plan Act of 2021 (ARP) allows smaller and mid-sized employers to claim a tax credit for the cost of COVID-19 related sick and family leave, including time taken to receive or recover from the COVID-19 vaccine. The credit is available to qualified employers that pay sick and family leave to employees that are unable to work or telework from April 1, 2021, to September 30, 2021.

Qualified medium and small employers are defined as businesses with 500 or fewer employees, including tax-exempt organizations, self-employed individuals, and certain governmental employers.

ARP paid leave credits are tax credits against the employer’s portion of the Medicare tax. The tax credits are refundable, which means that employers receive payment of the full refund amount if it exceeds what the employer owes in Medicare tax.

Paid sick leave wages have a tax credit equivalent to sick leave paid wages for COVID-19 reasons up to 80 hours, or two weeks. This is further limited to $511 per day, or a total of $5,110 in the aggregate at 100% the regular rate of pay for the employee. The wage tax credit is equivalent to the family leave wage paid for 12 weeks. This is limited to $200 a day, or $12,000 total at two-thirds the regular employee pay rate.

The tax credit is increased by health plan expenses and payments for collectively bargained benefits, as well as the employer’s total share of taxes related to Medicare and social security as paid on wages up to daily totals and caps established for each of the taxes.

Employers must report their paid sick and family leave wage total, including other health care related expenses, on their federal tax return.

Conclusion

For questions related to claiming paid leave credits through the ARP, contact your trusted Chugh CPAs, LLP professional.