American Rescue Plan Tax Credits Available for Covid-19 Related Paid Leave

The Internal Revenue Service (IRS) and the Treasury Department announced on April 21, 2021 that refundable tax credits under the American Rescue Plan Act are now available to small to midsize businesses. These refundable payroll tax credits reimburse the business for Covid-19 related costs such as providing paid sick and family leave and to receive/recovery from the Covid-19 vaccinations. This is another update that benefits businesses and allows employers to look out for the health of their employees.

SC&H’s Key Takeaways 

  • Eligible employers can claim tax credits that reimburse them for the expenses of providing paid leave related to Covid-19 
  • These credits are available to employers who pay sick and family leave from April 1, 2021 through September 30, 2021
  • Paid sick leave wages – a max of $511 per day and up to $5,110 in total 
  • Paid family leave wages – a max of $200 per day and up to $12,000 in total 
  • Self-employed individuals are eligible for similar tax credits 
  • The payroll tax credits are refundable

Who is Eligible? 

  • Less than 500 employees 
  • Any business, including tax-exempt organizations 
  • Some governmental employers 
  • Self-employed individuals 

Amount of Tax Credits and How They Are Calculated 

For paid sick leave wages, the tax credit is equal to wages paid for up to 2 weeks at 100 percent the employee’s regular wages for a max of $511 per day and a total of up to $5,110. 

For paid family leave wages, the tax credit is equal to wages paid for up to 12 weeks at 2/3rds the employee’s regular wages for a max of $220 per day and a total of up to $12,000. 

How to Claim the Tax Credits 

To claim the paid leave tax credits, employers must complete Form 941, Employer’s Quarterly Federal Tax Return. Form 1040 must be filled out by self-employed individuals to claim similar credits. If the employer will not have enough federal employment taxes on deposit to cover the amount of the credits, they can request an Advance Payment of Employer Credits Due to COVID-19 (Form 7200). 

To read more about the details on the paid leave tax credit, review the fact sheet on the IRS website 

Keep our Coronavirus Resource Center bookmarked for the latest and most timely information, or reach out to our Tax Services team if you have any questions.