IRS Offers Paid Leave Tax Credit Guidance to Small Employers Under the American Rescue Plan


The IRS and the Treasury Department released IR-2021-90 on April 21, 2021.  This issue will be of interest to eligible small employers providing paid leave to employees receiving COVID-19 vaccinations under the American Rescue Plan (ARP). Employers may now claim a refundable tax credit for wages paid to employees for time off related to COVID-19 vaccinations.  

IR-2021-90 details follow: 

  • ARP tax credits are available to eligible employers that pay sick and family leave for leave from April 1, 2021, through Sept. 30, 2021. 
  • Paid leave credits under the ARP are tax credits against the employer’s share of the Medicare tax.  The tax credits are refundable.  The employer is entitled to payment of the full amount of the credits if the amount exceeds the employer’s share of the Medicare tax. 
  • In anticipation of claiming credits on Form 941, Employer’s Quarterly Federal Tax Return, eligible employers will be allowed to keep the federal employment taxes that they otherwise would have deposited, including federal income tax withheld from employees, the employees’ share of social security and Medicare taxes and the eligible 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 eligible employer does not have enough federal employment taxes on deposit to cover the amount of the anticipated credits, the eligible employer may request an advance by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.
  • Self-employed individuals may also claim comparable credits on the Form 1040, U.S. Individual Income Tax Return.

Businesses and tax-exempt organizations with fewer than 500 employees and certain governmental employers are being encouraged to provide paid time off for employees receiving the vaccine and for any time needed to recover from the vaccine. Announcing a new fact sheet, FS-2021-09, April 2021, which details eligibility, how to calculate tax credit amounts, and claiming the credit, IRS Commissioner, Chuck Rettig, said,  “This new information is a shot in the arm for struggling small employers who are working hard to keep their businesses going while also watching out for the health of their employees.  Our work on this issue is part of a larger effort by the IRS to assist the nation recover from the pandemic.”

SPS/GZ is a full-service tax reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file Forms 1099, Affordable Care Act tax forms, and Forms 3921 and 3922.  Reach out today at [email protected] or call at (888)375-3049.  


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