2021 Paid Sick Leave Tax Credit

As the COVID-19 pandemic persists, Atlanta individuals, families, and businesses are feeling the impact of restrictive government orders and health mandates in schools, at work, and other public places. While the arrival of the vaccine has helped to curb the number of new infections, there is still much work to be done as Georgia has only distributed 67% of received doses. Over the coming weeks, many will line up to receive either the first or second inoculation and manage with the side effects. In fact, some may have to take sick time from work to receive the vaccine and more to recover. The good news is that this time off may qualify as paid sick leave under changes made in the American Rescue Plan Act of 2021 (ARPA). Starting on April 1, 2021, eligible Atlanta employers are entitled to receive a tax credit for wages paid to employees not able to work/telework due to COVID-19 related issues, including leave taken to receive the vaccine or illness that arise post-inoculation. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

Eligible Employers

Unfortunately, not every Atlanta employer will be permitted to participate. Only businesses, nonprofits, and certain governmental entities with less than 500 employees are eligible. In addition, certain self-employed individuals can receive a similar tax credit.

Qualifying Paid Sick Leave

Since the credit was first introduced as part of the Families First Coronavirus Response Act (FFCR) in early 2020, there have been several changes and extensions. The ARPA only made slight modifications by expanding the scope of covered reasons for which paid sick leave can be granted. The existing criteria have been expanded to include those obtaining a COVID-19 vaccine, recovering from the side effects of inoculation, and those seeking/awaiting results of a COVID-19 test or diagnosis in situations where an employee was exposed, or the test was mandated by the employer.

Additional Credit Details

The credit is equal to the sick leave wages paid up to two weeks (80 hours), limited to $511 per day and $5,110 in total, at 100% of the employee’s regular wages. The amount of the credit can be increased by allocable health plan expenses, and by the employer’s share of social security and Medicare taxes paid on the wages (up to the credit maximum).

The credit is taken against the employer’s share of Medicare taxes and is refundable which means a refund is possible when the credit amount exceeds Medicare tax liability.

Claiming the Credit

Eligible employers will report the total paid sick leave benefits, including the employer’s share of social security and Medicare taxes paid) for each quarter on the federal employment tax return (IRS Form 941). It is important to note when the credit is expected, an employer may keep federal employment taxes that otherwise would have been paid with the quarterly filing. This includes both the employee and employer share of social security and Medicare. In addition, in situations where an employer does not have enough employment taxes set aside to cover paid sick leave, they may request an advance of the credit by filing IRS Form 7200, Advance Payment of Employer Credit Due to COVID-19.

Contact Us

The expansion of the credit allows businesses to offer employees receiving the vaccine to do so without concern about losing pay. Since the credit is claimed against quarterly tax filings, it is important to review your situation with a qualified tax advisor to claim the benefit on your first quarter return. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.