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Eligible employers can claim tax credits for giving workers paid leave to receive COVID-19 shots

Authored by Christine Faris, Devin Tenney and Krissa Lietz

The IRS recently provided further details relating to the Emergency Paid Sick Leave (EPSL) tax credit and the Emergency Family and Medical Leave (EFML) tax credit under the American Rescue Plan Act of 2021 (ARPA). These tax credits are designed to assist small businesses in providing paid time off for employees to receive COVID-19 vaccinations. The IRS also issued guidance (Fact Sheet 2021-09) on how employers can claim these credits.

Who is an eligible employer?

An eligible employer is any business, including a tax-exempt organization, with fewer than 500 employees. An eligible employer also includes nonfederal governmental and nonfederal section 501(c)(1) organizations or agencies.

Tax credits extended by ARPA

Eligible employers that pay EPSL and/or EFML wages from April 1, 2021, to Sept. 30, 2021, not counting any leave taken prior to April 1, may take the tax credits on those wages. The following applies only to the period from April 1 through Sept. 30:

  • The EPSL was effectively renewed by allowing employers to provide up to 80 additional hours of EPSL to employees (providing an additional benefit of up to $5,110).
  • The benefit available under the EFML was increased by eliminating the requirement that the first two weeks of the 12-week EFML period be unpaid (providing an additional benefit of up to $2,000).

For example, if an eligible employer offers employees a paid day off in order to be vaccinated, the employer can receive a tax credit equal to the wages paid to employees for that day up to the above limits.

Qualifying paid leave reasons expanded by ARPA

For the period starting April 1, 2021, the ARPA expanded qualifying reasons for the EPSL and the EFML to include payments made to an employee:

  1. Receiving a COVID-19 vaccination,
  2. Recovering from side effects or injuries related to the COVID-19 vaccination, or
  3. Seeking or waiting for results of a COVID-19 test, if the employee has either been exposed to COVID-19 or the employer requested the COVID-19 test.

Claiming the tax credits

The tax credits are available to eligible employers that pay sick and family leave wages from April 1, 2021, through Sept. 30, 2021.

Both tax credits are refundable and count against the employer’s portion of Medicare tax. The credits can be claimed on the employer’s quarterly Forms 941.

Employers can reduce their federal payroll tax deposits by the amount of their anticipated credit. Any amounts over and above the federal payroll tax liability are refundable on Forms 941. Form(s) 7200 can also be filed to claim and advance payment of the credit throughout each quarter. Self-employed individuals can claim the credits on their Form 1040 return.

We encourage you to reach out to your Baker Tilly advisor regarding how the above may affect your tax situation.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

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