The new tax credit can help employers offset the cost of providing paid time off for employees to get vaccinated and recover.
The newest component of the American Rescue Plan (ARP) includes incentives for businesses to encourage their employees to get vaccinated against COVID-19. On April 21, 2021, the Biden administration announced a tax credit to reimburse small business and nonprofit organizations to give their staff paid time off to get vaccinated, and paid time to recover from any side effects of the vaccine, if needed.
This new rule also extends tax credits for paid leave that were originally enacted under the 2020 Families First Coronavirus Response Act. The FFCRA expired March 31, 2021 but has been extended through September 30, 2021. It allowed businesses to apply for tax credits for up to 12 weeks of paid leave that was caused directly or indirectly by the pandemic.
Vaccination tax credit
The new rule allows businesses to extend paid sick time tax credits beyond employees who have, or are attending to a family member that has, the virus. Now employers can cover the cost of getting vaccinated and recovering from the vaccine, if needed. Employees will be eligible if they get their vaccine after April 1, 2021; the credit will continue through September 30, 2021.
The tax credits are allowed for leave taken to get a COVID-19 vaccination and to recover from any injury, disability, illness, or condition related to the vaccination.
The tax credits are allowed for leave taken to get a COVID-19 vaccination and to recover from any injury, disability, illness, or condition related to the vaccination. It applies to businesses with less than 500 employees as well as nonprofits.
The credit of 100% of employee wages, up to $511 per day per employee, for up to 2 weeks or 80 hours ($5,110 maximum) will apply if the employee is:
- Sick or quarantining
- Awaiting results of a COVID test, or
- If they were obtaining or recovering from a COVID-19 vaccine
Paid sick leave extended
The administration is also extending the FFCRA tax credit for paid family leave necessitated by the pandemic. Employers are eligible to take a tax credit reimbursing staff for up to 12 weeks, at no more than $200 per day ($12,000 total) or 2/3 the employee’s regular wage. These credits are allowed for employees who:
- Are ill or quarantined due to the virus
- Are caring for someone ill or quarantined due to the virus, or
- Have a child in their care whose school or care center is closed due to the virus
The extended sick leave credits may be increased to cover some health plan expenses and contributions under a collective bargaining agreement, as well as an employer’s share of Social Security and Medicare taxes paid on wages.
How to apply for the tax credit
The tax credits under the newest revision to the ARP are credits against the employer’s cost for wages and more. Employers will be able to keep their share of federal income taxes withheld, along with social security and Medicare taxes due, up to the amount of the credit. They will be able to use the credit against any tax payments due and payable, but the credits are also refundable. If the employer doesn’t owe any taxes, they will be allowed to request a refund of the amount of the credit that exceeds the employer’s share of the Medicare tax.
Employers will be able to keep their share of federal income taxes withheld, along with social security and Medicare taxes due, up to the amount of the credit.
The IRS is anticipating employers will begin applying for the credit immediately and have created information and filing documents to do so. Form 941, Employer’s Quarterly Federal Tax Return, provides information on:
- Applying for the credit, or
- Applying for a refund
If the business doesn’t 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 also claim the tax credits, using Form 1040, U.S. Individual Income Tax Return.
The administration has also created a link to Health and Human Services’ national campaign, We Can Do This, to help organizations get involved in building vaccine confidence. Resources are available as well as guidance. The hope is to encourage business and workers to get vaccinated as soon as possible.
The White House has also set up a questionnaire for businesses, Tell Us How Your Business or Nonprofit Is Supporting COVID Vaccinations. Eight questions ask about:
- Your business
- Whether you’re planning to use the tax credit to allow workers paid time off to be vaccinated and recover
- If you’ll be setting up an internal vaccine site at your workplace, and
- How your company is going above and beyond