IRS expands paid leave tax credit to encourage vaccinations

Accounting

The Internal Revenue Service and the Treasury Department allowed eligible employers Thursday to claim tax credits equivalent to the wages paid for providing paid time-off to employees to take a family or household member or certain other individuals to get vaccinated for COVID-19, or to take care of a family or household member or other individuals recovering from a vaccination.

Comparable tax credits are also available for self-employed individuals. The announcement Thursday expands a tax break that was announced last spring.

The Biden administration has been trying to encourage more people to get COVID-19 vaccinations as the highly transmissible Delta variant continues to spread around the U.S., upending plans for reopening the country for business and normal activities this summer. This week, the Centers for Disease Control and Prevention once again reversed their recommendations for wearing masks, encouraging even vaccinated people to wear their masks indoors to prevent further spread of this dangerous strain of the coronavirus. The administration also announced Thursday that federal employees and contract workers would be required to be vaccinated or else submit to regular COVID-19 tests, while urging states and cities to pay Americans $100 to get vaccinated. Thursday’s expanded guidance on the paid leave tax credit aims to give employers more opportunity to protect the health and safety of their employees’ families and communities by vaccinating them.

A pharmacist prepares a dose of the Moderna COVID-19 vaccine at a mass vaccination super site operated by Sharp HealthCare inside a former Sears store in Chula Vista, California.

Bing Guan/Bloomberg

The Treasury and the IRS said back in April that eligible employers, such as businesses and tax-exempt organizations with fewer than 500 employees and certain governmental employers, could receive paid leave tax credits available under the American Rescue Plan Act of 2021 for providing leave for each employee receiving the vaccine and for any time needed to recover from the vaccine.

The Internal Revenue Service posted an updated set of frequently asked questions Thursday on the expansion of the paid sick and family leave tax credits. The updates clarify that eligible employers can claim the credits for providing leave to employees to accompany a family or household member or certain other individuals to obtain immunization relating to COVID-19 or to care for a family or household member or certain other individuals recovering from the immunization.

“The paid sick and family leave credits reimburse eligible employers for the cost of providing paid sick and family leave for reasons related to COVID-19,” said the IRS. “The revised FAQs make clear this includes leave taken by employees to care for certain individuals to obtain immunization relating to COVID-19 or to recover from immunization relating to COVID-19. This new reason for paid sick or family leave also applies for the comparable credits for self-employed individuals.”

The IRS pointed out that the paid sick and family leave tax credits under the American Rescue Plan are similar to those put in place by the Families First Coronavirus Response Act (FFCRA), as amended and extended by the COVID-related Tax Relief Act of 2020, under which certain employers could receive tax credits for providing paid sick or family leave that met the requirements of the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act (as added by FFCRA). The tax credits under the FFCRA, as amended and extended by the Tax Relief Act, covered leave taken beginning April 1, 2020, through March 31, 2021. The ARP amends and extends these credits to leave taken beginning April 1, 2021, through Sept. 30, 2021.

The FAQs include information on how employers can claim the paid sick and family leave credits, with details on how to file for and calculate the relevant credit amounts, along with how to receive advance payments for and refunds of the credits. Under the American Rescue Plan, eligible employers, including businesses and tax-exempt organizations with fewer than 500 employees and certain governmental employers, can claim tax credits for qualified leave wages and certain other wage-related expenses (such as health plan expenses and certain collectively bargained benefits). Self-employed individuals can claim similar credits when they file their Form 1040.

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