COVID-19 Vaccination Tax Credit for Small Businesses

The American Rescue Plan Act of 2021 (ARP) provides for refundable tax credits that are meant to reimburse employers for providing paid sick and family leave to their employees due to COVID-19, which includes leave taken by employees to receive or recover from COVID-19 vaccinations. These ARP credits are available for paid leave from April 1, 2021 through September 30, 2021 for eligible employers.

To be considered an eligible employer, you must be a business or tax-exempt organization with fewer than 500 employees, this includes self-employed individuals.

ARP tax credits are tax credits applied against the employer’s share of the Medicare tax and they are refundable. The credit for paid sick leave is equal to the sick leave wages paid for COVID-19 reasons for up to 80 hours, limited to $511 per day and $5,110 in the aggregate, at 100% of the employee’s regular rate of pay.

The tax credit for family leave wages is equal to the family leave wages paid for up to twelve weeks, limited to $200 per day and $12,000 in the aggregate, at 66.66% of the employee’s regular pay. Both credits not only include the cash wages, but also allocable health plan expenses and the employer’s share of social security and Medicare taxes paid on the eligible cash wages (subject to the daily and total threshold amounts previously reported).

These credits can be claimed as a refund on the quarterly Form 941, or the business can reduce their total federal deposits for that quarter in anticipation of the claimed credit, or they may request an advance of the credit by filing Form 7200. Self-employed individuals will claim their tax credits on their individual Form 1040 return.

For more information on these valuable payroll tax credits, please contact an HM&M advisor.

For more information check out HM&M’s COVID-19 Resources page.

HM&M COVID-19 Resources