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IRS offers tax credits to let workers take time off to get their COVID-19 vaccination

Regulators have built in flexibility, but there are some limitations companies need to consider

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Photo (c) A. Martin UW Photography - Getty Images
To help workers who feel they can’t take time off work to get their COVID-19 vaccination, the Internal Revenue Service (IRS) and the Treasury Department are offering tax credits to help small businesses offer that allowance. The offer was first announced by President Biden on Wednesday. 

“Businesses and employers ... should be supported for doing the right thing. So to make sure this policy comes at no cost to small- or medium-sized businesses ... the IRS is posting instructions for how employers can get reimbursed for the cost of providing paid leave for their employees to get vaccinated and recover from the side effects if they have any. That reimbursement, which comes through a tax payment, is thanks to the program I launched in the American Rescue Plan,” Biden said.

Eligible employers may claim those tax credits for any sick leave or family leave paid to employees, including leave taken to receive or recover from COVID-19 vaccinations. However, this is not a forever offer. The paid leave has to take place between April 1, 2021, and September 30, 2021.

Eligibility and limitations

The IRS says businesses will need to have fewer than 500 employees in order to be eligible for the program. An eligible employer also includes tax-exempt organizations and a governmental employer. The agency notes that to be considered eligible, a governmental employer must be one “other than the federal government and any agency or instrumentality of the federal government that is not an organization described in section 501(c)(1) of the Internal Revenue Code.” 

As an example, the IRS said if an eligible employer offers employees a paid day off in order to get vaccinated, then that employer can receive a tax credit equal to the dollar amount of wages paid to employees for that day -- up to certain limits.

“The tax credit for paid sick leave wages is equal to the sick leave wages paid for COVID-19 related reasons for up to two weeks (80 hours), limited to $511 per day and $5,110 in the aggregate, at 100 percent of the employee's regular rate of pay,” the agency stated.

The IRS said the tax credit for paid family leave wages is equal to the family leave wages paid for up to 12 weeks, but it also has limitations: a max of $200 per day and $12,000 in the aggregate, at two-thirds of the employee's regular rate of pay. The agency said the amount of those tax credits can be increased by other items such as health plan expenses, contributions for certain collectively bargained benefits, and the employer's share of Social Security and Medicare taxes paid on the wages. Self-employed individuals are also eligible for similar tax credits in their Individual Form 1040 tax return.

For complete details on every facet of the offer, the IRS has created a guide to help employers and self-employed individuals dot all the I’s and cross their T’s correctly. That guide is available here.

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