The American Rescue Plan provides for small employers to get tax credits for giving paid time off (PTO) to employees receiving COVID-19 vaccines. According to a press release issued by the IRS and the Treasury Department, this includes PTO for each employee receiving the vaccine and any time needed to recover from the vaccine. As explained by the IRS, if an eligible employer offers employees a paid day off to get vaccinated, the employer can receive a tax credit equal to the wages paid to employees for that day (up to certain limits).

According to the IRS Fact Sheet, 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% 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). Eligible employers may claim tax credits for sick and family leave paid to employees from April 1, 2021, through September 30, 2021.

Qualified employers should report their total paid sick and family leave wages plus the above eligible expenses for each quarter on their federal employment tax return (Form 941, Employer's Quarterly Federal Tax Return). Self-employed individuals may claim comparable credits on Form 1040, U.S. Individual Income Tax Return.

Eligible employers can keep the federal employment taxes that they otherwise would have deposited. This includes federal income tax withheld from employees, the employees' share of social security and Medicare taxes and the 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 qualified employer does not have enough federal employment taxes on deposit to cover the amount of the anticipated credits, the employer may request an advance by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Please visit our COVID-19 Resource Page for more insights and learn about our COVID-19 Recovery Services.

Feel free to contact any member of our team at (610) 828-1900 (PA) or (732) 341-3893 (NJ) with questions. Rich Higgins, CPA, managing principal – New Jersey office can be contacted at Richard.Higgins@McCarthy.CPA. I can be reached at Marty.McCarthy@McCarthy.CPA. As always, we are happy to help.