Although COVID-19 infections have lessened recently, there are still a few cases out there, and there are also cases of people suffering from illness, injury, or disability after receiving the COVID-19 vaccination(s). It is possible you will find your business paying sick leave or family leave to employees so they can recover from illness caused by the vaccination or so they can take care of a relative recovering from illness caused by the vaccination.
According to the IRS Factsheet, if your business or tax-exempt organization has fewer than 500 employees, you are eligible for tax credits that reimburse you for paying sick and family leave to your employees due to COVID-19, including leave taken by employees to receive COVID-19 vaccinations and/or leave taken by employees to recover from COVID-19 vaccinations between April 1 and September 30, 2021.
These refundable tax credits are available under the American Rescue Plan Act of 2021 (ARP) (IRS.com). The paid leave credits under the ARP are tax credits against the employer’s share of the Medicare tax. The tax credits are refundable, which means 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.
Sick Leave Tax Credit
The tax credit for paid sick leave wages is equal to the sick leave wages paid for COVID-19 related reasons for 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. (IRS.gov)
Family Leave Tax Credit
The tax credit for paid family leave wages is equal to the family leave wages paid for 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. The amount of these tax credits is increased by allocable health plan expenses and contributions for certain collectively bargained benefits, as well as the employer’s share of social security and Medicare taxes paid on the wages (up to the respective daily and total caps). (IRS.gov)
Claim the Credit on Your Employer’s Quarterly Federal Tax Return
Eligible employers report their total paid sick and family leave wages (plus the eligible health plan expenses and collectively bargained contributions and the eligible employer’s share of social security and Medicare taxes on the paid leave wages) for each quarter between April 1 and September 30, 2021 on their federal employment tax return, usually Form 941, Employer’s Quarterly Federal Tax Return PDF.
In anticipation of claiming the credits on the Form 941, 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 an eligible employer does not have enough federal employment taxes set aside for deposit to cover amounts provided as paid sick and family leave wages, the eligible employer may request an advance of the credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. The eligible employer will account for the amounts received as an advance when it files its Form 941 for the relevant quarter.
Self Employed
Self-employed individuals may claim comparable tax credits on their individual Form 1040, U.S. Individual Income Tax Return. (IRS.gov)