Internal Revenue Service (IRS)

IRS and Treasury outline tax credit details for small businesses

Eligible employers can receive a tax credit for providing paid time off for each employee receiving the vaccine and for any time needed to recover from the vaccine

The Internal Revenue Service (IRS) and Treasury Department have announced further details of tax credits available under the American Rescue Plan to help small businesses, including providing paid leave for employees receiving Covid-19 vaccinations.

The additional details “spell out some basic facts” about the employers eligible for the tax credits, and provide information on how these employers may claim the credit for leave paid to employees related to Covid-19 vaccinations.

Eligible employers, such as businesses and tax-exempt organizations with fewer than 500 employees and certain governmental employers, can receive a tax credit for providing paid time off for each employee receiving the vaccine and for any time needed to recover from the vaccine. 

For example, if an eligible employer offers employees a paid day off in order to get vaccinated, the employer can receive a tax credit equal to the wages paid to employees for that day (up to certain limits).

IRS commissioner Chuck Rettig said: “This new information is a shot in the arm for struggling small employers who are working hard to keep their businesses going while also watching out for the health of their employees. Our work on this issue is part of a larger effort by the IRS to assist the nation recover from the pandemic.”

The American Rescue Plan Act of 2021 (ARP) allows small and midsize employers, and certain governmental employers, to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to Covid-19, including leave taken by employees to receive or recover from vaccinations. Self-employed individuals are eligible for similar tax credits.

The ARP tax credits are available to eligible employers that pay sick and family leave for leave 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, which means that the employer is entitled to payment of the full amount of the credits if it exceeds the employer’s share of the Medicare tax.

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