On April 21, 2021, the Internal Revenue Service (IRS) and Treasury Department announced details of tax credits that were made available through the American Rescue Plan Act of 2021 (ARP). The credits are aimed to help small and midsize businesses that provide paid sick and family leave due to COVID-19, including leave taken by employees to receive or recover from COVID-19 vaccinations.
Who is Eligible?
The tax credits are available to both for-profit and nonprofit organizations with fewer than 500 employees. These credits are also available to certain governmental employers. Self-employed individuals are eligible for similar credits.
Eligible employers may claim the credits for paid sick and family leave from April 1, 2021, through September 30, 2021.
Tax Credit Amounts and Calculations
The ARP states that paid leave credits are tax credits against the employer’s share of the Medicare Tax. The tax credits are refundable meaning employers are entitled to the full amount of the credit even if it exceeds the employer’s share of the Medicare tax.
According to the IRS fact sheet, the tax credit for paid sick leave wages is equal to two weeks of paid sick leave (80 hours) for reasons related to COVID-19. The pay is limited to $511 / day and will not exceed $5,110 total (at 100% of employee’s regular pay rate). The tax credit for paid family leave wages equals 12 weeks of paid family leave, limited to $200 per day and will not exceed $12,000, at two-thirds of the employee’s regular rate of pay.
The amount of these tax credits is increased by qualified health plan expenses paid by the employer and employee pre-tax.
Claiming the tax credits.
Eligible employers may report total paid sick and family leave wages (including eligible health plan expenses, bargained contributions and the employer’s share of social security and Medicare taxes on the paid leave wages) for each quarter on their federal employment tax return.
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