Vax Tax Credit: Employers Can Claim Tax Credits to get Employees Vaccinated

The American Rescue Plan, passed on March 11, 2021, expanded paid sick and family leave tax credits to eligible employers that pay wages to employees who are on leave to receive or recover from a COVID-19 vaccination. The credits could encourage employees who are covered by this benefit to get vaccinated.

Small and mid-size businesses and certain government agencies can claim refundable tax credits to reimburse them for paid sick and family leave wages paid to employees for reasons related to COVID-19. This includes wages paid to an employee on leave to receive or recover from a COVID-19 vaccination. The tax credits are available for wages paid for leave from April 1, 2021, through September 30, 2021.

The paid sick and family leave tax credits were first introduced in March 2020 as part of the Families First Coronavirus Response Act. The requirement for certain employers to pay sick and family leave wages expired on December 31, 2020, but the Consolidated Appropriations Act of 2021 extended the tax credits (but not the requirement to offer leave) for paid leave from January 1, 2021, to March 31, 2021. The American Rescue Plan extends and expands these credits to help employees receive COVID-19 vaccinations.

Which Employers are Eligible?

Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees. This also includes state and local governmental employers and IRC Section 501(c)(1) organizations that are not federal government organizations.

Tax Credits for Employers

The paid sick leave tax credit is equal to 100 percent of the sick leave wages paid to an employee for up to 80 hours of leave with a limit of $511 per day and $5,110 total per employee. The family leave tax credit is equal 100 percent of the family leave wages paid to an employee up to 12 weeks of leave with a limit of $200 per day and $12,000 total per employee. The refundable paid leave tax credits are credits against the employer’s share of the Medicare tax, and the employer is entitled to a refund of the amount of the credits that exceed the employer’s share of the Medicare tax.

Employers can claim the credits on their quarterly Forms 941. Employers who are expecting to claim the credits can keep the federal employment taxes that they otherwise would have deposited. This includes federal income tax withheld from employees and both the employee and employer share of Social Security and Medicare taxes for all employees up to the amount of credit for which they are eligible.

An employer that does not have enough federal employment taxes on deposit to cover the amount of the anticipated credits may request an advance on the credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Tax Credits for Self-Employed Individuals

Self-employed individuals are eligible for similar tax credits and may claim the credits on the Form 1040, U.S. Individual Income Tax Return.

For sick leave, self-employed individuals are generally entitled to an income tax credit for up to 10 days of leave. This credit is equal to the number of sick leave days multiplied by the lesser of:

1. Two-thirds of the taxpayer’s average daily self-employment income (or 100 percent of the taxpayer’s average daily self-employment income if the individual is caring for a family member, is subject to quarantine, is seeking or awaiting the results of a diagnosis of COVID–19 after exposure to COVID–19, or is receiving or recovering from a COVID–19 vaccination); or
2. $200 per day (or $511 per day if the individual is caring for a family member, is subject to quarantine, is seeking or awaiting the results of a diagnosis of COVID–19 after exposure to COVID–19, or is receiving or recovering from a COVID–19 vaccination).

For family leave, the credit is equal to the number of leave days, with a maximum of 60, multiplied by the lesser of:

1. Two-thirds of the taxpayer’s average daily self-employment income; or
2. $200 per day.

For more information on the expanded paid sick and family leave tax credits, contact us. We’re here to help.

© 2021