American Rescue Plan provides tax credits for small businesses

April 29, 2021

Further details have been released regarding tax credits available under the American Rescue Plan of 2021 (ARP) to aid small businesses providing paid leave for employees receiving COVID-19 vaccinations. 

The Internal Revenue Service (IRS) and the Treasury Department fact sheet outlines employer eligibility for the tax credits, as well as information on how eligible employers can claim the credit. 

According to the IRS, eligible employers—which includes 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. This also includes time needed to recover from the vaccine.

For example, an eligible employer offering employees a paid day off for vaccination can receive a tax credit equal to wages paid to employees for that day (up to certain limits).

Eligible employers who pay sick and family leave to employees (from April 1, 2021, through Sept. 30, 2021) can claim the credit. Self-employed individuals are eligible for similar tax credits.

However, 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 the employer is entitled to payment of the full amount of the credits if it exceeds the employer's share of the Medicare tax.

Eligible employers can keep the federal employment taxes 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.

If the eligible employer does not have enough federal employment taxes on deposit to cover the amount of the anticipated credits, the eligible employer may request an advance by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.