Tax Credit Provides Direct Relief for COVID-19 Leave

Pietragallo Gordon Alfano Bosick & Raspanti, LLP
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Pietragallo Gordon Alfano Bosick & Raspanti, LLP

Takeaway:

Intended to provide direct relief to small businesses, the ARP employer tax credit provides an excellent opportunity for employers to reduce their tax liability.


Small business owners may be eligible for additional financial relief to assist in recovery from the COVID-19 pandemic under the new American Rescue Plan (ARP) signed into law on March 11, 2021.

Under the ARP, small and midsize employers may be eligible to claim tax credits to reimburse the costs of providing paid sick and family leave to employees due to COVID-19. This includes time taken by employees to receive or recover from COVID-19 vaccinations. Pursuant to a fact sheet recently released by the IRS, here are some of the key provisions for employers.

    1. Eligible Employers Include:
      • Any business with fewer than 500 employees.
      • Tax exempt organizations (excluding certain federal government agencies).
      • Self-employed individuals may be eligible for similar credits.
    2. Employers may take the tax credits for wages paid for leave taken by employees related to COVID-19 vaccinations and recovery.
      • The relevant time frame is employee leave between April 1 through September 30, 2021.
      • Employers can receive credit for the time that their employees are unable to work or telework.
      • Leave includes the time necessary for employees to receive a COVID-19 vaccination and recover from any condition caused by the vaccination.
    3. The ARP Leave Credits act as Tax Credits Against Employer’s Share of Medicare Tax
      • If the credits exceed the employer’s share of Medicare tax, the excess is refunded directly back to the employer.
    4. The Tax Credit is Equal to Sick Leave Wages Paid for COVID-19 Related Reasons
      • For Individuals: up to two weeks (80 hours), limited to $511 per day and $5,110 in the aggregate, at 100 percent of the employee’s regular rate of pay.
      • For Family Leave Wage: up to twelve weeks, limited to $200 per day and $12,000 in the aggregate, at 2/3rds of the employee’s regular rate of pay.
    5. Employer’s may claim the credits on their Form 941 – Employer’s Quarterly Federal Tax Return
      • Eligible employers may be qualified to keep the federal employment taxes that they would have otherwise paid in quarterly deposits.

Intended to provide direct relief to small businesses, the ARP employer tax credit provides an excellent opportunity for employers to reduce their tax liability. Employers must be aware of the credits and properly claim them on Form 941. Employers should also provide the leave necessary for their employees to address COVID-19 concerns. While employers must be cautious against inquiring too directly into their employees’ medical matters, the employer should note whether the employee’s inability to work is related to a COVID-19 vaccination. The ARP credit encourages underlying policy goals of employers providing employees the time necessary to obtain (and recover) from multiple COVID vaccinations.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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