New Tax Credit for Employers that Offer PTO for COVID-19 Vaccinations

A new paid leave tax credit has been announced to fully offset the cost for small businesses to offer paid time off (PTO) for employees who elect to get a COVID-19 vaccination. Find out how this new tax credit works, which organizations are eligible, and what else employers need to know.

What is the New Tax Credit for Employers that Offer PTO to Employees for COVID-19 Vaccinations?

The new paid leave tax credit is designed to incentivize employers to encourage their employees to get a COVID-19 vaccination. Paid leave granted includes time off for employees to actually get the shot(s) and any necessary recovery time. The provision is a component of the American Rescue Plan Act (ARPA), a stimulus bill passed in March 2021.

Here’s how it works:

  1. The tax credit for paid sick leave can be claimed by eligible employers that offer up to 80 hours (10 workdays), limited to $511 per day (and $5,110 total, at 100% of their regular rate of pay) to each employee who elects to receive a COVID-19 vaccine.

  2. The tax credit for paid family leave wages is equivalent to family leave wages paid for up to 12 weeks, limited to $200 per day and $12,000 total (at two-thirds the employee’s regular rate of pay).

The tax credit applies to nearly half of all private-sector workers in the U.S.

Which Employers Are Eligible for the Paid Leave Tax Credit?

Eligible employers include any business—including tax-exempt organizations—that have less than 500 employees. This also includes government employers and other similar federal agencies.

The IRS also states that self-employed individuals are eligible for “similar tax credits.”

How Long Does the Tax Credit Last?

Eligible employers that offer paid sick and family leave for COVID-19 vaccinations can claim the tax credit for time off wages granted between April 1, 2021, and Sept. 30, 2021.

Employers should also note that thanks to a provision in ARPA, the 10-day/80-hour limit for paid sick leave under the Families First Coronavirus Response Act (FFCRA) was reset on April 1, 2021. As a result, employees who exhausted their paid sick leave before this deadline are entitled to an additional 10 days or 80 hours.

How Do Organizations Elect the Paid Leave Tax Credit?

Tax credits for sick and family leave can be claimed when employers file their quarterly Form 941. Additionally, the IRS states that the refundable paid leave credits are tax credits against the employer’s share of the Medicare tax.

Employers and HR teams should review the IRS’s fact sheet to learn more about electing this tax credit.

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