New Vaccination Tax Credit: Rescue Plan Act of 2021

May 6, 2021

Employers are seeing a new vaccination tax credit. Here is what you need to know as it is detailed in the Rescue Plan Act of 2021.

Image of a hand giving out a life ring, a symbol of the new vaccination tax credit.

April showers bring May flowers!  Thus, in line with that thinking, April immunizations may bring nice tax credits to some small businesses.  So, let’s see what all that means by finding out more about The American Rescue Plan Act of 2021 (ARP).

What’s with PTO for Vaccinations?

Perhaps you remember a January post, discussing the measures Aldi was taking to encourage employees to get vaccinated.  Not only were they reimbursing employees for the cost of the vaccine, but they were paying employees two hours’ wages for the time they used to go get the vaccine.  Aldi is just one example of a business seeing the value in compensating employees for vaccinations.

New Vaccination Credit Image 2
Photo by Pan American Health Org | Source | CC by

Due to the pandemic, many small businesses felt the pinch of slim crews working to meet demands.  Then, as the vaccinations rolled out, business owners felt hopeful that things might have the potential to start getting back to near normal.  One of the challenges business owners faced as their employees began taking time to get the vaccination was the time off they needed.  First, they needed to take time to go get the vaccination itself.  Then, some employees experienced complications from the vaccine, such as fever, aches, and fatigue.  Therefore, they required additional time off to get well.  Smart business owners began to recognize the benefit of providing paid time off to employees to get the vaccine, and, if necessary, to take care of themselves should they fall ill after.

What is the American Rescue Plan Act of 2021?

In order to incentivize businesses that play a role in stopping the spread of COVID-19, the government stepped in.  The federal government rolled out the American Rescue Plan Act of 2021 (ARP) to give back to employers who provide generously to employees.  According to the IRS website, “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 COVID-19 vaccinations. ”

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Am I eligible for the vaccination tax credit?

So, the important thing to know is that this credit is available to small and midsize employers, as well as certain governmental employers.  Specifically, the employer must have fewer than 500 employees.  Additionally, self-employed individuals may be eligible for certain types of tax credits. Federal government agencies are not eligible for the tax credit.

Which types of leave can I pay, earning a credit?

Now, this tax credit applies only to COVID-19-related issues.  Possible scenarios are as follows:

  • An employer provides PTO for an employee who is infected with COVID-19.
  • If an employee’s family member falls ill due to COVID-19, the employer provides PTO for an employee to care for the family member
  • An employer provides PTO to an employee who goes to get the COVID-19 vaccine.
  • An employee who becomes injured, disabled, or ill due to receiving the COVID-19 vaccine.

How much is the tax credit?

Since the tax credit is refundable, the employer may receive the full credit, if the circumstances are right.  One thing to note is that the IRS calculates the credit against the employer’s share of Medicare.  So, if the credit amount is more than what the employer would pay in Medicare taxes, then the employer can receive the full credit amount.

Here are the capped amounts for the tax credits:

New Vaccination Credit Chart
Capped Employer Tax Credit Amounts

According to the IRS website, ARP tax credits may also increase according to the following scenarios:

  • allocable health plan expenses and contributions for certain collectively bargained contributions
  • employer’s share of social security and Medicare taxes paid on the wages (with the max at the aforementioned daily and total caps)
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How do I claim the vaccination tax credit?

Luckily, the process for employers to claim the ARP tax credit is actually pretty simple.  First, they need to stay organized in recording the sick and family leave paid to employees.  That’s easy enough if they use a trusted payroll professional!  Second, employers will report the total paid on their quarterly federal tax form (likely, the 941 form).

Also, if employers do not have sufficient federal employment taxes on reserve, they may request an advance to cover the paid leave wages amounts.

Should I be claiming the ARP tax credit?

In summary, if you are an employer of fewer than 500 employees, and you’ve been paying employees sick and/or family leave wages, then you should report those wages on your quarterly federal tax form.  If eligible, the IRS will fully reimburse you for the amount you paid employees over your share of the Medicare tax. However, there are caps on how much employers can be reimbursed.

Hopefully, this tax credit will shower you with unexpected savings as you bask in the springtime glow.  Also, this tax credit could be the water on the seed to help businesses get a fresh restart as we begin to control the spread of COVID-19.

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