COVID-19 Paid Sick and Family Leave Tax Credits Now Available

The American Rescue Plan of 2021 (ARP) is now providing a tax credit for paid sick or family leave related to COVID-19 and the COVID-19 vaccinations. Employers can claim tax credits for the wages paid to employees for paid leave due to issues arising from COVID-19, including leave taken to receive or recover from COVID-19 vaccinations, from April 1-September 30, 2021.

To be eligible, your business must have fewer than 500 employees. Tax-exempt organizations qualify as well as governmental employers, other than the federal government and any agency or instrumentality of the federal government that is not an organization described in section 501(c)(1) of the Internal Revenue Code. Additionally, self-employed individuals are entitled to similar tax credits.

Under ARP, employers may claim tax credits to cover the following:

• Eligible paid sick leave wages for a maximum of 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
• Family leave wages for a maximum of 12 weeks at two-thirds of the employee’s regular rate of pay limited to $200 per day and $12,000 in the aggregate
• Eligible employee qualified health plan expenses that are allocable to qualified sick leave wages and family leave wages
• The employer’s share of social security and Medicare taxes imposed on those wages, and
• Pension plan and apprenticeship program contributions made by employers under a collective bargaining agreement that are allocable to employee sick and family leave.

To claim the credits, employers should file their Form 941, Employer’s Quarterly Federal Tax Return, specifying the amount being withheld.

The credits will be taken against the COVID-19 paid leave credits, which are credits against the employers’ share of the Medicare tax that has been paid. If an employer does not have enough federal taxes withheld to cover the amounts paid for sick or family leave and other eligible expenses, the employer may apply for an advance for the credits, using Form 7200, Advance Payment of Employer Credits Due to COVID-19. The employer would then account for the advanced credits when they file their Form 941 for the relevant quarter.

Self-employed individuals should refer to their Form 1040, U.S. Individual Income Tax Return  to file for comparable tax credits.

For additional COVID-19 related information, go to our Coronavirus/COVID-19 Resource Center.

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