Under the American Rescue Plan Act of 2021 (ARP), sick leave tax credits are available to covered employers. On July 29th, 2021, the Internal Revenue Service (IRS) updated its guidance on those available tax credits. Previously, the IRS released information on multiemployer pension plan financial assistance in conjunction with the Pension Benefit Guaranty Corporation (PBGC).
Overview of the Frequently Asked Questions (FAQs) Updates
In summary, the IRS created the tax credit FAQs to convey information to covered employers with fewer than 500 employees. Following the passage of the ARP in March 2021, the IRS first released similar FAQ guidance. The ARP always included family and sick leave tax credits. However, some critical definitions were missing from the legal language. For example, what is the meaning of “sick leave wages”? As a result, the IRS updated its FAQs to include the following:
- Firstly, qualified sick leave wages include wages paid to an employee to accompany an “individual” to obtain a COVID-19 immunization. Also, sick leave wages include care for someone recovering from any injury, disability, illness, or condition related to the vaccine; and
- Secondly, an “individual” for whom employers may receive a sick leave tax credit for in instances of caring for others through immunizations includes:
- the vaccinated person is a family member;
- someone who is getting vaccinated and regularly resides in the employee’s home; or
- a person who is getting vaccinated and is regularly under the employee’s care.
- Thirdly, the term “individual” does not include persons with whom employees have no personal relationship.
Calculation of Tax Credits
In conclusion, under the ARP, covered employers may have access to family and sick leave tax credits. As noted previously, qualifying sick and paid family leave wages now include wages related to immunizations. Accordingly, employers may be entitled to:
- A sick leave tax credit for up to two weeks (up to 80 hours) at 2/3 the employee’s regular pay rate. The sick leave tax credit can be up to $200 per day or $2,000 in the aggregate; or
- A family leave tax credit for up to twelve weeks of paid family leave at 2/3 the employee’s regular pay rate. The family leave tax credit can be up to $200 per day or $12,000 in the aggregate.
Finally, employers can receive family and sick leave credits for leave taken between April 1st, 2021, and September 30th, 2021.