The American Rescue Plan Act of 2021 (the “ARP”) offers self-employed individuals and employers with fewer than 500 employees a new tax credit for paid time off to get vaccinated or to accompany another beginning on April 1, 2021 through September 30, 2021. An Eligible Employer may claim a fully refundable tax credit equal to 100 percent of the qualified sick leave wages (plus allocable qualified health plan expenses and the employer’s share of social security and Medicare taxes imposed on the qualified sick leave wages) it pays. The maximum amount of qualified sick leave wages for purposes of the credit is up to $511 per day for up to 10 days for reasons related to the employee’s own health needs and up to $200 per day for up to 10 days for reasons related to the employee’s need to care for others.

Overview of Paid Sick Leave Refundable Credit

Under the ARP, Eligible Employers are entitled to tax credits if they provide employees with paid sick leave if the employee is unable to work due to any of the following:

1. the employee is under a Federal, State, or local quarantine or isolation order related to COVID-19;

• the employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;

• the employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis, seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID–19 and the employee has been exposed to COVID–19 or the employee’s employer has requested the test or diagnosis, or obtaining immunization related to COVID–19 or recovering from any injury, disability, illness, or condition related to the immunization;

• the employee is caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19, or has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;

• the employee is caring for the child of the employee if the school or place of care of the child has been closed, or the childcare provider of the child is unavailable, due to COVID–19 precautions; or
• the employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services (HHS) in consultation with the Secretary of the Treasury and the Secretary of Labor. The Secretary of HHS has specified, after consultation with the Secretaries of Treasury and Labor, that a substantially similar condition is one in which the employee takes leave to accompany an individual to obtain immunization related to COVID-19, or to care for an individual who is recovering from any injury, disability, illness, or condition related to the immunization. For more information on who is an “individual” for purposes of this condition, see “Do “qualified sick leave wages” include wages paid for leave taken to accompany an individual who is obtaining a vaccination or to care for an individual who is recovering from vaccination?” and “Do “qualified family leave wages” include wages paid for leave taken to accompany an individual who is obtaining a vaccination or to care for an individual who is recovering from vaccination?”

Amount of Tax Credit for Qualified Sick Leave Wages

The Eligible Employer is entitled to a fully refundable tax credit for qualified sick leave wages it pays. For an employee who is unable to work due to reasons described in (1), (2) or (3) above, the Eligible Employer may claim a tax credit for up to two weeks (up to 80 hours) of paid sick leave at the employee’s regular rate of pay, or, if higher, the Federal minimum wage or any applicable State or local minimum wage, up  to $511 per  day  and  $5,110  in  the  aggregate for  leave taken beginning  on April 1, 2021, through September 30, 2021.

For an employee who is unable to work due to reasons described in (4), (5) or (6) above, the Eligible Employer may claim a tax credit for up to two weeks (up to 80 hours) of paid sick leave at 2/3 the employee’s regular rate of pay or, if higher, the Federal minimum wage or any applicable State or local minimum wage, up to $200 per day and $2,000 in the aggregate for leave taken beginning on April 1, 2021, through September 30, 2021.

The Eligible Employer is subject to the employer’s share of social security and Medicare taxes imposed on those qualified sick leave wages; however, the tax credit is increased by the amount of the employer’s share of social security and Medicare taxes imposed on the qualified sick leave wages, as well as allocable qualified health plan expenses.

Overview of Paid Family Leave Refundable Credit

The Eligible Employer is entitled to a fully refundable tax credit if they provide employees with paid family leave because the employee is unable to work due to any of the reasons listed above for which Eligible Employers may provide paid sick leave. An Eligible Employer may claim a tax credit for qualified family leave wages for an employee who is unable to work due to any of those circumstances, at 2/3 the employee’s regular pay, up to $200 per day and $12,000 in the aggregate for qualified family leave wages paid with respect to leave taken by employees beginning on April 1, 2021, through September 30, 2021. Up to 12 weeks of qualifying leave can be counted towards the paid family leave tax credit. An Eligible Employer may not claim the credit for providing paid family leave for any wages for which it claimed a tax credit for providing paid sick leave.

The Eligible Employer is subject to the employer’s share of social security and Medicare taxes imposed on those wages; however, the Eligible Employer’s tax credit is increased by the employer’s share of social security and Medicare taxes imposed on the qualified sick leave wages, as well as allocable qualified health plan expenses during the family leave period.

Claiming the Paid Sick and Family Leave Credits

 Eligible Employers are entitled to receive the credits for the full amount of qualified leave wages, plus allocable qualified health plan expenses and the employer’s share of social security and Medicare taxes imposed on the qualified leave wages, that are paid with respect to leave taken by employees beginning on April 1, 2021, through September 30, 2021. The credit is allowed against the income tax, FICA, and Medicare taxes on all wages and compensation, respectively, paid to all employees. If the amount of the credit exceeds the Eligible Employer’s share of these federal employment taxes, the excess is treated as an overpayment and refunded to the Eligible Employer. Eligible Employers that pay qualified leave wages may retain an amount of all federal employment taxes equal to the amount of the anticipated tax credits based on qualified leave wages paid (plus allocable qualified health plan expenses and the employer’s share of social security and Medicare taxes imposed on the qualified leave wages), rather than depositing the employment taxes with the IRS. The federal employment taxes that are available for retention include federal income taxes withheld from employees, the employees’ share of social security and Medicare taxes, and the employer’s share of social security and Medicare taxes with respect to all employees