The IRS and Treasury Department announced additional details of tax credits available under the American Rescue Plan Act of 2021 (ARPA) (P.L. 117-2) to help small businesses.
In a fact sheet released today, the IRS outlines basic facts regarding the employers eligible for the tax credits. It also provides information on how these employers may claim credit for leave paid to employees receiving COVID-19 vaccinations.
The news release states, "Eligible employers, such as businesses and tax-exempt organizations with fewer than 500 employees and certain governmental employers, can receive a tax credit for providing paid time off for each employee receiving the vaccine and for any time needed to recover from the vaccine. For example, if an eligible employer offers employees a paid day off in order to get vaccinated, the employer can receive a tax credit equal to the wages paid to employees for that day (up to certain limits)."
The ARPA allows small and midsize employers to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19. This includes leave taken by employees to receive or recover from COVID-19 vaccinations.
The paid leave credits under the ARPA are refundable tax credits against the employer's share of the Medicare tax. The fact sheet clarifies that the employer is entitled to payment of the full amount of the credits if it exceeds the employer's share of the Medicare tax.
"In anticipation of claiming the credits on Form 941, Employer's Quarterly Federal Tax Return PDF, eligible employers can keep the federal employment taxes that they otherwise would have deposited, including federal income tax withheld from employees, the 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 the eligible employer does not have enough federal employment taxes on deposit to cover the amount of the anticipated credits, the eligible employer may request an advance by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19."
Self-employed individuals may use Form 1040, U.S. Individual Income Tax Return PDF to claim comparable credits.
The fact sheet is available here.