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COVID Paid Leave Credit Clarified for Employers

The Internal Revenue Service has updated its guidance on expanded paid sick and family leave tax credits available to employers who provide the leave to their workers. Put in place by the American Rescue Plan Act of 2021, also known as ARP, the credits permit eligible employers to be reimbursed for providing paid sick and family leave to their employees for COVID-19-related reasons.

The IRS has revised its frequently asked questions (FAQs) on the credits to clarify that eligible leave now includes that taken by employees to accompany a family member or another member of their household to get immunized against COVID-19, or to care for them as they recover from an immunization. This expanded eligibility is also extended to credits for self-employed taxpayers.

Coverage was extended by the American Rescue Plan.

The expansion of the paid leave tax credit is the latest improvement in an effort that started in 2020 with the Families First Coronavirus Response Act (FFCRA). While “the tax credits under the FFCRA, as amended and extended by the Tax Relief Act, covered leave taken beginning April 1, 2020, through March 31, 2021,” the IRS notes that ARP has further extended the credit to apply to leave taken from April 1, 2021 to September 30, 2021.

Additionally, under the American Rescue Plan, eligible employers include businesses and tax-exempt organizations that have fewer than 500 employees. Employers deemed eligible can claim tax credits for qualified leave wages and some wage-related expenses, including health plan expense and some benefits obtained through collective bargaining.

How do I learn more about the credit?

The newly expanded IRS FAQs explain how employers can claim the paid sick and family leave credits, as well as how to file for the credits and how to calculate applicable credit amounts. The FAQs also detail how employers can get advance payments or refunds of the credits.

The IRS closes the release by reminding self-employed taxpayers that they can “claim comparable credits on Form 1040, US Individual Income Tax Return.”


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