Are you a small business worrying how you will compensate folks for time off to get the COVID vaccine and pay them for leave if they have side effects from a 2nd shot that prevents them from working?
Worry no more. Tax credits for paid leave for COVID vaccinations are available to organizations such as businesses and tax-exempt organizations with fewer than 500 employees, and can cover up to $511 per day for employees suffering side effects from the vaccine. The tax credit is funded through FFCRA under the American Rescue Plan, and provides tax credits to eligible employers that voluntarily provide paid leave for COVID related issues through September 30, 2021.
The American Rescue Plan Act of 2021 ( see prior article here ) allows small and midsize employers, to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19, including leave taken by employees to receive or recover from COVID-19 vaccinations. How?
The Act extended the FFCRA again, from March 31st to September 30th, and also resets the amount of emergency paid sick leave under the FFCRA. Starting April 1, 2021, if an employer continues to offer FFCRA leave voluntarily, the employer can claim a payroll tax credit to offset up to 10 days of wages paid as qualified emergency paid sick leave, even if employees previously exhausted their emergency entitlement. Although extended to include vaccines and reactions from vaccination, the other reasons allowed for FFCRA stay pretty much the same, see below:
- The employee is seeking or awaiting the results of a diagnostic test for or a medical diagnosis of COVID-19 after an exposure, or at the employer’s request;
- The employee is obtaining a COVID-19 vaccine;
- The employee is recovering from any injury, disability, illness or condition related to a COVID-19 vaccine;
- There is a new annual allotment of up to 80 hours (10 days) per employee of qualifying paid sick leave available for 2021 tax credits. It allows employers to offer a new bucket of leave when an employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis.
- The tax credit an employer can receive for paid sick leave is based on an employee’s regular rate of pay, up to a cap of $511 a day, if the leave is needed for one of the new reasons related to immunization or testing or because of the employee’s own symptoms, quarantine or isolation.
- If the paid sick leave is for any other COVID related reason, the amount of tax credit an employer can receive is limited to 2/3 the employee’s regular rate of pay and capped at $200 a day.
In anticipation of claiming the credits on the Form 941, Employer’s Quarterly Federal Tax Return, eligible employers can keep the federal employment taxes that they would have deposited. With respect to all employees up to the amount of credit for which they are eligible, 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
The 941 instructions explain how to reflect the reduced liabilities for the quarter related to the deposit schedule. If the eligible employer does not have enough federal employment taxes on deposit to cover the amount of the anticipated credits, they may request an advance by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Self-employed individuals may claim comparable credits on their Form 1040.
Reach Out To Us: The American Rescue Plan Act has extended FFCRA tax credits so they can be used even for folks who get the vaccine and have a reaction! Small employers may claim tax credits for leave paid to employees related to COVID-19 quarantine, testing, vaccinations and time needed to recover from the vaccine. These tax credits are a shot in the arm for struggling employers trying to keep their businesses going while also watching out for the health of their employees. Self-employed individuals are eligible for similar tax credits. If you have questions about the process, or need help with any of the forms, please contact us at CPA@Fuoco.com.
Click HERE for a printable copy of the chart below!
