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Employer Tax Credits for Paid Sick and Family Leave Extends to Vaccines by Joanie Stein, CPA

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Posted on June 21, 2021 by Joanie Stein

The IRS issued important guidance concerning an expansion of the COVID-19-related paid sick and family leave tax credits available to employers under the American Rescue Plan (ARP) enacted earlier this year.

Background

Congress introduced the emergency paid sick leave and family and medical leave programs in 2020 as part of the Families First Coronavirus Response Act (FFCRA). Under the program, businesses and tax-exempt organizations with fewer than 500 employees can qualify for a refundable tax credit when they provide qualifying full-time and part-time employees up to 80 hours of paid sick leave plus an additional 10 weeks of paid family leave through the pandemic crisis period. Similar tax credits are also available to the self-employed. The refundable credit was touted as a way to reimburse employers for each dollar in qualifying wages and health plan expenses they continued to pay employees forced to take leave to care for themselves or their family members during the pandemic.

What’s New

The key paid sick and family leave provisions included in the third round of COVID stimulus signed into law on March 11, 2021, do the following:

Although employers are not required to offer paid leave for any of the covered reasons, including receiving or recovering from an immunization, they will qualify for the tax credit against their share of Medicare tax when they do so. Because paid sick and family leave credits are refundable, employers are entitled to payment of the full amount of the credits that exceed their share of the Medicare tax. Similar credits are also available for self-employed taxpayers.

The tax credit for paid sick leave is equal to the sick leave wages paid for COVID-19 related reasons for up to two weeks (80 hours), up to a maximum of $511 per day per employee. Due to the extended availability of the credit, an employee’s 10-day limit is reset beginning on April 1, 2021.

The tax credit for paid family leave wages paid for up to 12 weeks (480 hours) retains a $200 per employee, per day limit while increasing the cumulative per-employee cap to $12,000 for an expanded 60-day period, rather than the previous 50-day limit. Allocable health plan expenses, contributions to certain collectively bargained benefits, and the employer’s share of social security and Medicare taxes on paid wages may increase these credits, up to the established limits.

Claiming the Credit

To claim tax credits for paid sick and/or family leave, eligible employers should report their total paid sick and family leave wages for each quarter on their federal employment tax return, usually Form 941, Employer’s Quarterly Federal Tax Return. For self-employed taxpayers, the credits may be claimed on Form 1040, U.S. Individual Income Tax Return.

According to the IRS, eligible employers that anticipate claiming these credits may withhold from their quarterly federal employment tax deposits the amount of credit for which they are eligible, including federal income taxes withheld from employees, the employees’ shares of social security and Medicare taxes, and the employers’ shares of employees’ social security and Medicare taxes. If an employer does not have sufficient federal employment taxes to cover the amount of the credits, it may request an advance payment of the credits from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

About the Author: Joanie B. Stein, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where she works with individuals and closely held businesses to implement sound strategies that are intended to preserve wealth and improve tax-efficiency. She can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.