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Business Tax Credits for Offering Paid Time Off in Order for Employees to be Vaccinated

Vaccination rates have slowed in the past few weeks. America is averaging about three million vaccinations per day after reaching over 4.5 million doses a day in early April. Time off and financial restraints have become a sticking point for many individuals who have yet to receive their first dose. In response, President Biden put the focus on small businesses to offer paid time off to their employees to get vaccinated and help halt the slowdown in the US pandemic recovery efforts. To help motivate them, small and medium businesses can file for tax credits in order to offset the costs of the additional PTO. Small and medium sized business employ nearly forty-seven percent (47%) of the private sector (according to the Census Bureau’s Annual Survey of Entrepreneurs last published data from 2016) and constitute more than 99% of businesses in America. Hopefully the tax credits will motivate those businesses to offer the PTO and will have a substantial effect on both the country’s recovery and the businesses’ ability to return to a more normal function.

The tax credits mentioned by President Biden, Wednesday, were authorized in the American Rescue Plan Act of 2021 (ARPA). Title IX Part Five (5) of ARPA expanded the reasons employers may claim tax credits for offering paid sick time related to Covid-19. These credits were originally authorized in the Families First Coronavirus Response Act (FFCRA). ARPA also extended these tax credits through September 30, 2021.

ARPA added time taken by an employee: to get vaccinated, to recover from the immunization, and to be tested or while the employee is awaiting the results of a Covid-19 test to the reasons that an employer can receive the tax credits. The credits are setoffs against the employer’s share of the Medicare tax owed for each employee. Businesses with fewer than five hundred employees can be reimbursed up to up to five hundred eleven dollars ($511) per employee per day. Even better this tax credit is refundable. If the tax credits a business claims are more than the payroll taxes for the quarter, the business can receive a refund.

The IRS released guidance for businesses claiming the tax credit on April 9, 2021. Based on the guidance provided and ARPA, the tax credit related to employees receiving the vaccine is only available for time off taken after March 31, 2021 and before October 1, 2021. Businesses claiming the tax credit will report the total paid for sick and family wages on their quarterly federal income tax return. Most businesses report this on the 941 Employer’s Quarterly Federal Tax Return. According to the IRS, “eligible employers can keep the federal employment taxes that they otherwise would have deposited, including federal income tax withheld from employees, the employees’ share of social security and Medicare taxes and the eligible employer’s share of social security and Medicare taxes with respect to all employees up to the amount of credit for which they are eligible.”

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