The IRS created a fact sheet that provides details of refundable tax credits available to small and midsize employers under the American Rescue Plan Act of 2021 (ARPA).
The tax credits reimburse these employers for the cost of providing paid emergency sick and expanded family and medical leave to employees due to COVID-19, including leave taken by employees to receive or recover from COVID-19 vaccinations. The tax credits under ARPA are against the employer’s share of the Medicare tax.
Here are some highlights from the fact sheet:
- Eligible employers. An eligible employer is any business, including a tax-exempt organization, with fewer than 500 employees. This includes a governmental employer, other than the federal government, and any agency or instrumentality of the federal government that is not an organization described in IRC §501(c)(1).
- Time period. The tax credits are available for wages paid for leave from April 1 through September 30, 2021.
- Paid sick and family and medical leave for which tax credits can be claimed. Eligible employers are entitled to tax credits for wages paid for leave taken by employees who are not able to work or telework due to reasons related to COVID-19, including leave taken to receive COVID-19 vaccinations or to recover from any injury, disability, illness, or condition related to the vaccinations.
- Calculating leave. The tax credit for paid sick leave is equal to wages paid for COVID-19-related reasons for 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 and medical leave wages is equal to the wages paid for up to 12 weeks, limited to $200 per day and $12,000 in the aggregate, at 2/3 of the employee’s regular rate of pay. The amount of allocable health plan expenses and contributions for collectively bargained benefits, as well as the employer’s share of social security and Medicare taxes paid on the wages, can be included up to the daily and total caps. Claiming the credit Eligible employers report total paid sick and family and medical leave wages for each quarter on Form 941, Employer’s Quarterly Federal Tax Return. Eligible employers can keep the federal employment taxes that they otherwise would have deposited, including federal income tax withheld from employees, employees’ share of social security and Medicare taxes, and the eligible employer’s share of social security and Medicare taxes with respect to all employees up to the amount of credit for which they are eligible. If an eligible employer does not have enough federal employment taxes set aside for deposit to cover leave amounts provided, the employer may request an advance of the credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. The amounts received as an advance should be accounted for when filing Form 941 for the relevant quarter.