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In a White House speech on April 21, 2021, President Biden encouraged employers to utilize a COVID-19 vaccine tax credit rolled out in the American Rescue Plan Act of 2021 (ARP). The tax credit is part of an effort to encourage more Americans to receive the vaccine and applies to small and midsize businesses that provide paid leave to employees who take time off to get vaccinated or recover from potential side effects associated with the vaccine. The IRS has published details on the tax-credit plan, and key components include:
- Eligible companies are those with less than 500 employees and some governmental employers. Self-employed individuals are eligible for similar tax credits.
- The tax credit covers 100% of up to $511 in daily wages per employee. The credit can be claimed for up to 2 weeks (80 hours) for sick leave wages paid for COVID-19 related reasons.
- Employers can claim the credits for leave taken to receive or recover from COVID-19 vaccinations from April 1, 2021, through September 30, 2021.
- The paid leave credits under the ARP are tax credits against the employer’s share of the Medicare tax. The tax credits are refundable, meaning the employer is entitled to payment of the full amount of the credits if it exceeds the employer’s share of the Medicare tax.
- Eligible employers will claim the credits on Form 941, Employer’s Quarterly Federal Tax Return.
- In anticipation of claiming the credits on Form 941, eligible employers can keep the federal employment taxes that they otherwise would have deposited up to the amount of credit for which they are eligible. Form 941 instructions explain how to reflect the reduced liabilities for the quarter related to the deposit schedule.
- In some instances, the eligible employer may request an advance of the credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. The employer will account for the amounts received as an advance when it files its Form 941 for the relevant quarter.
- Self-employed individuals may claim comparable tax credits on their individual Form 1040, U.S. Individual Income Tax Return.
Andy Starnes, CPA, is a Partner and Tax Services Practice Leader Moore Colson. Andy’s specialties include corporate tax compliance and planning, business consulting and multi-generational planning with a focus on the construction, professional services and staffing industries.