President Biden made headlines when he announced that tax credits will be offered to employers who provide time off to their employees to a) get the COVID-19 vaccine, or b) to employees who are experiencing side effects from the vaccine.
This is an expansion of the paid leave tax credits that exist under the Emergency Paid Sick Leave Act (EPSLA). Below, we’ll get into who is eligible for the tax credit, how to claim the tax credit, and what to do if you don’t have the funds to cover this PTO.
How does eligibility work?
Both the employer and the employee must be eligible in order for the employer to receive the tax credit. Eligible businesses must have fewer than 500 part-time or full-time employees; non-profit businesses and self-employed individuals are considered eligible.
Eligible employees must not be able to work or telework and include:
- Part-time employees
- Full-time employees
- Self-employed individuals
- Employees on leave;
- Temps (supplied by an agency, and/or jointly employed by an agency)
Independent contractors are not eligible to take this paid leave.
What are the requirements around providing paid leave?
- Full-time employees are covered for up to 10 days of paid leave and part-time employees are covered for up to 80 hours of paid leave. The calendar for paid leave under EPSLA was reset on April 1, 2021.
- In order to receive the tax credit, the employer must pay out 100 percent of the employee’s wages (or up to $511 per day, whichever is lower) for the duration of the leave; the maximum amount of leave pay is $5110.
- Leave must be taken between April 1, 2021 and September 30, 2021.
- Employers who offer leave to some eligible employees, but not to others will not be eligible for the tax credit. This is to ensure no discrimination is taking place and that leave is being administered to any eligible employee who properly requests it.
How does the tax credit work?
This is a fully refundable, dollar for dollar tax credit against Medicare tax.
Let’s break that down:
a) Fully refundable means that if the amount of the tax credit exceeds the amount you, the employer, owe in taxes, you will receive a check for the difference.
b) A dollar for dollar tax credit means that you should expect to receive a tax credit in the exact same amount you have paid out in COVID-19 vaccine-related leave. Just remember: the maximum amount is $5110 per employee.
c) Against Medicare tax means that this tax credit will decrease the Medicare tax amount you are required to pay.
If you know you will be claiming the credits (and we’ll walk you through how to do that below), eligible employers can keep the federal employment taxes instead of depositing them; this includes the employee’s share of social security and Medicare taxes, up to the eligible tax credit amount.
Also, if you don’t have enough cash flow to cover these leave wages, you may request an advance on the tax credits by filing Form 7200. Just remember that once you file your 941 form for your quarterly tax return, you will have to record the advance amounts you received in that quarter.
How to claim the tax credit
Employers can claim the credit in their quarterly tax filings; simply report the total paid leave amount on Form 941.
If you are self-employed, you will claim the credit on your Form 1040.
Commonly asked questions about COVID-19 Vaccine-Related Paid Leave
Tax credits can get very confusing, so we’ve put together a few frequently asked questions for employers:
Are employers required to provide this paid leave?
No, but those who choose to will be provided with these tax credits.
My employee already took PTO under EPSLA; is that employee eligible for this leave?
The calendar reset on April 1, 2021, so as long as the employee has not maxed out 10 days (80 hours for part-time employees) of leave since April 1, that employee remains eligible.
My employee took PTO under EPSLA for a different reason; is that employee eligible for this leave?
An employee can take leave under EPSLA for any combination of these reasons:
- The employee has been diagnosed with COVID-19
- The employee is experiencing COVID-10 symptoms and is awaiting a diagnosis
- The employee is getting vaccinated for COVID-19
- The employee is experiencing symptoms after receiving the COVID-19 vaccine
- The employee is subject to a quarantine or isolation order from a federal, state, or local government
- The employee has been advised to quarantine by a healthcare worker
- The employee is caring for someone who is subject to a quarantine or isolation order from a federal, state, or local government
- The employee is caring for someone who has been advised to quarantine by a healthcare worker
- The employee is caring for a child whose school or daycare is closed due to COVID-19 ciror childcare provider
Any eligible employee can take leave for more than one reason, but the leave time is capped; it doesn’t extend if there are multiple reasons. The leave time remains up to 10 days for full-timers and 80 hours for part-timers.
For example, Susan takes five days off because she was advised to quarantine by her doctor.
A month later, she takes three days to care for her son whose school has closed due to COVID-19.
A few weeks after that, she is experiencing COVID-19 symptoms and takes two days off.
At this point, her EPSLA leave has run out, so she cannot take anymore leave under EPSLA; if Susan needs more time off, you can explore her options under your company’s leave policy, the state and local leave policies, or under EFMLA.
The leave calendar for EPSLA reset on April 1, 2021, so all employees who took leave before then got a fresh start at the beginning of April.
Can I pay out paid leave with employees with PPP funds and still get tax credits?
No. If you wish to receive a PPP refund and a tax credit, be sure to pay out leave using other funds, and stick to PPP covered expenses in order to be refunded for the loan.
Are self-employed individuals eligible for the tax credit?
Yes. The rules are the same; the only difference is how you claim the credit (self-employed individuals claim the credit on Form 1040).