On March 11, 2021, President Biden signed into law The American Rescue Plan (ARP). A portion of this law allows both small and medium-sized employers, as well as certain governmental employers, to claim refundable tax credits to reimburse them for the cost of providing their employees with paid sick and family leave due to COVID-19. The reimbursable costs also extend to the leave taken by employees to receive and/or recover from the COVID-19 vaccinations. These tax credits are available to eligible employers that pay sick and family leave due to COVID-19 from April 1, 2021 through September 30, 2021.
Does My Business Qualify?
Eligible employers include all small to medium-sized business, in addition to tax-exempt organizations, that have fewer than 500 employees. Additionally, an eligible employer also includes governmental employers, other than the federal government and any agency of the federal government that is not an organization described in section 501(c)(1) of the Internal Revenue Code. There are similar tax credits available for those who are self-employed.
What is the Credit Value?
The credit value encompasses the wages paid between April 1, 2020 to September 30, 2021 for leave taken by employees who are unable to work or telework due to reasons related to COVID-19, including leave taken to receive and recover from the COVID-19 vaccination. The eligible credits are paid as tax credits against the employer’s share of the Medicare tax. If the amount exceeds the employer’s share of the Medicare tax, then the employer is entitled to an additional payment.
The tax credit is equal to the sick leave wages paid due to COVID-19 related reasons for up to two weeks, or 80 hours. The credit is limited to $511 per day or $5,110 for the two weeks in total for each employee, at 100 percent of the employee’s regular rate of pay. For example, if an employee’s regular pay was $400 per day, the credit would be capped at $4,000 for that employee. Additionally, the tax credit for paid family leave wages is equal to family leave wages paid for up to twelve weeks and limited to $200 per day or $12,000 for the total twelve weeks, at 2/3rds of the employee’s regular rate of pay. The tax credit is also increased by the allocated healthcare plan expenses and contributions for specific benefits, as well as the employer’s share of Social Security and Medicare taxes paid on the wages.
How Do I Claim the Credit?
If you believe you may qualify for these Tax Credits introduced under the American Rescue Plan, it is important to speak to a tax advisor about the next steps. While claiming the credit may be complex, Bennett Thrasher has a dedicated team of advisors to assist you in claiming your eligible tax credits related to the wages paid for sick and family leave related to COVID-19. For more information and to see if your business is eligible for this credit or any other tax credit, please contact Betsi Barrett by calling 770.396.2200.