To Virgil, “the greatest wealth is health.” Borrowing from the Roman poet, the American Rescue Plan Act of 2021 (“ARPA”) passed in March made some tweaks to the Emergency Paid Sick Leave Act (passed as part of the Families First Coronavirus Response Act in March 2020) to include COVID-19 testing or immunization as qualified sick leave wages.
Employers with fewer than 500 employees are entitled to tax credits for wages paid for leave taken by employees who are unable to work due to reasons related to COVID-19, including leave for testing, to receive vaccinations or to recover from illness related to vaccinations. Self-employed individuals are also eligible and can claim the credit on their Form 1040.
The tax credit for paid sick leave wages paid for COVID-19 related reasons is for up to 80 hours, limited to $511 per day and $5,110 in the aggregate, at 100% of the employee’s regular rate of pay. The credit for family leave wages, however, is equal to the family leave wages paid for up to twelve weeks, limited to $200 per day and $12,000 in the aggregate, at two-thirds of the employee’s regular rate of pay. The amount of the tax credits is further increased by allocable health plan expenses and contributions for certain collectively bargained benefits, and employer share of social security and Medicare taxes paid on the wages up to the respective daily and total caps.
Credits are to be taken against the employer’s share of Medicare tax, and are refundable if they exceed that share. The applicable period for leave is from April 1, 2021 through September 30, 2021. In anticipation of claiming the credits on Form 941, eligible employers can keep federal income tax withheld from employees, and both withheld and 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 employer does not have enough federal employment taxes set aside for deposit to cover paid sick and family leave wages plus health, other allowable benefits, employer share of social security and Medicare taxes on paid leave wages, then the employer may request an advance by filing Form 7200.
As always, we will keep you updated of all new developments. In the meantime, please contact your Friedman LLP advisor with any questions.