IRS Expands ARPA Paid-Leave Tax Credit to Incentivize More Vaccination

As Delta variant cases continue to rise, many employers are already considering policies to encourage COVID vaccination among their employees. Recently, the IRS further incentivized employers to pursue such policies by expanding the paid-leave tax credit under the American Rescue Plan Act (ARPA).

Find out how the paid leave tax credit has been expanded and how your organization can take advantage of it.

What’s the Paid-Leave Tax Credit?

The paid-leave tax credit is a federal incentive included in the ARPA, a significant legislative response to the COVID pandemic signed into law in early March 2021. One of many important ARPA provisions for employers, the paid-leave tax credit encourages small to mid-sized businesses to offer paid time off for employees choosing to get the COVID vaccine, including time to receive or recover from vaccination.

Eligible employers include any business—including tax-exempt organizations and government agencies—that have fewer than 500 employees. According to the Biden administration’s fact sheet, “This tax credit will apply to nearly half of all private sector employees in America.” The IRS further clarified that self-employed individuals are eligible for “similar tax credits.”

How Does the Paid-Leave Tax Credit Work?

Here’s how the paid-leave tax credit works:

• For paid sick leave, the credit can be claimed by eligible employers for up to 80 hours (10 workdays) per employee choosing vaccination, limited to $511 per day ($5,110 total) at 100% of their regular rate of pay. 
• For paid family leave, the credit can be claimed by eligible employers for up to 60 workdays (12 weeks), limited to $200 per day and $12,000 total (at two-thirds the employee’s regular rate of pay).

   

How Has the Paid-Leave Tax Credit Been Expanded?

In late July 2021, the IRS updated its guidance on the paid-leave tax credit. While the original guidance applied only to an employee’s personal vaccination, the updated guidance expands the tax credit to include PTO for employees who help family or household members receive or recover from COVID vaccination.

The new IRS guidance clarifies that eligible employers may claim the credit for providing PTO to an employee who:

• accompanies an individual to obtain a COVID vaccination.

• cares for an individual recovering from COVID vaccination.

In this context, an individual is defined as “an immediate family member, someone who regularly resides in the employee’s home, or a similar person with whom the employee has a relationship that creates an expectation that the employee would care for the person.”

In a press release, the Treasury Department explained, “Today’s expanded guidance gives employers further opportunity to support the health and safety of their employees’ families and communities without placing an undue burden on their business during the pandemic.”

How Can Employers Claim the Paid-Leave Tax Credit?

Tax credits for sick and family leave can be claimed when employers file their quarterly Form 941. Eligible employers can claim the tax credit for time off wages granted between April 1 and September 30, 2021.

Additionally, the IRS states that the refundable paid leave credits are “tax credits against the employer’s share of the Medicare tax.” Employers and HR teams should review the IRS’s fact sheet to learn more about how to elect this tax credit.