Tax Refund Boost: Who Can Claim the Paid Sick and Family Leave Credit?
One provision of the American Rescue Plan Act of 2021 was a refundable tax credit available to small, midsize and certain government employers that reimburses them for the cost of providing paid sick and family leave to employees due to COVID-19, including those who needed leave to get or recover from COVID-19 vaccinations.
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The credits are available to eligible employers that paid sick and family leave from April 1, 2021, through Sept. 30, 2021, according to the IRS website. If you are a small business owner who paid sick and/or family leave during those dates, here’s what you need to know about eligibility and credit amounts:
- An eligible employer is any business with fewer than 500 employees, including tax-exempt organizations and certain state and local government entities. Self-employed individuals are eligible for similar tax credits.
- For sick leave, the tax credit is equal to the sick leave wages paid for COVID-related reasons for up to two weeks (80 hours), limited to $511 per day and $5,110 in the aggregate, at 100% of the employee’s regular rate of pay.
- The tax credit for paid family leave wages is equal to the family leave wages paid for up to 12 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 is increased by allocable health plan expenses and contributions for certain collectively bargained benefits, as well as the employer’s share of Social Security and Medicare taxes paid on the wages (up to the respective daily and total caps).
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To claim the credit, you must have reported your total paid sick and family leave wages, plus other qualified expenses, on your quarterly federal employment tax returns for the relevant quarters — typically Form 941. If you didn’t have enough federal employment taxes set aside to cover amounts provided as paid sick and family leave wages, you can request an advance of the credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Self-employed individuals can claim comparable tax credits on their individual Form 1040.
Although the tax credit was only made available through Sept. 30, 2021, President Joe Biden urged Congress to pass a new federal paid family and medical leave policy in his State of the Union Address Tuesday night.
The proposal is part of Biden’s Build Back Better plan, which has stalled in Congress. Democrats wanted to pass the bill through a simple majority, but opposition from Democratic Senator Joe Manchin of West Virginia ended that possibility, at least in the bill’s original form. The Biden administration has been working on a scaled-back version of the bill.
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