One of the tax relief provisions included in the American Rescue Plan includes a refundable tax credit to eligible employers for paid time off (PTO) related to obtaining a COVID-19 vaccine. Eligible employers include businesses and tax-exempt organizations with less than 500 employees and certain governmental employers.
- The credit can be claimed for PTO paid to each employee who took time off to receive a vaccine, including recovery time, and equals the wages paid to such employees for that day.
- The credits are limited to a total of 80 hours (10 days) up to $511 per day of wages paid between April 1, 2021 and September 30, 2021.
- The maximum credit allowed is $5,110.
- The credit includes 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 caps).
- The credits are claimed on IRS Form 941, Employer’s Quarterly Federal Tax Return, and are taken as a credit against the Medicare tax.
- If the credit exceeds the Medicare tax, the excess is refundable.
We recommend that eligible employers gather the information for the credits as soon as possible so that the information is ready by the time the 941s are filed. If a payroll service provider files Form 941 on the employer’s behalf, the information should be provided to the payroll service provider as soon as possible in order for them to properly file for the credit.
If the employer wants to receive the benefit of the credits prior to filing Form 941, the employer can reduce the Federal tax deposits for the quarter, equal to the amount of the credit, or can request an advance of the credits by filing Form 7200, Advance Payment of Employer Credits.
Self-employed individuals may claim a comparable credit on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, which is filed with Form 1040. The credit is based on net self-employment income, divided by 260 days, multiplied by the number of days off for the vaccine/recovery. This is capped at $511 per day. The individual claiming the credit should document the date(s) they were unable to work due to the COVID-19 vaccination.
If the self-employed individual wants to receive the benefit of the credits prior to filing the 2021 Form 1040, the individual can reduce the Federal estimated tax payment for the quarter, equal to the amount of the credit.