Tax Credits for COVID-19 Vaccine Paid Leave

In News Release 2021-160, the IRS recently made an important announcement related to COVID-19 vaccinations and tax credits.

 

That is, wages paid for leave taken to accompany someone who’s getting vaccinated, or to care for someone recovering from a vaccination, may be considered:

  • Qualified family leave wages for purposes of the qualified family leave wages tax credit, and
  • Qualified sick leave wages for purposes of the qualified sick leave wages credit.

This applies to wages paid, as well as to self-employment income, with respect to leave taken from April 1, 2021, through September 30, 2021.

Qualified leave wages

Under the American Rescue Plan Act (ARPA), credits are available to employers with fewer than 500 employees, and certain governmental employers without regard to the number of employees, for qualified sick and family leave wages. (These are generally referred to as “qualified leave wages.”)

The Internal Revenue Code lists circumstances under which wages are eligible to be qualified leave wages. This includes compensation that eligible employers pay with respect to leave taken by an employee during which he or she is unable to work because of a condition or substantially similar condition specified by the Secretary of the U.S. Department of Health and Human Services (HHS) in consultation with the Secretary of the U.S. Department of the Treasury and the Secretary of the U.S. Department of Labor.

Vaccination assistance

The HHS Secretary has specified, in consultation with the Secretaries of Treasury and Labor, that an eligible employer may pay qualified sick leave wages and qualified family leave wages to an employee who takes leave:

To accompany an individual to obtain immunization related to COVID-19, or
To care for an individual who’s recovering from any injury, disability, illness or condition (or “substantially similar condition”) related to the immunization.
According to the News Release: “Although the reasons for eligible employers to pay employees the qualified family leave wages are the same as for the qualified sick leave wages, the wages cannot be for the same hours for purposes of claiming the credits.”

Definition of “individual”

The HHS Secretary further specified that, for this purpose, “individual” has the same meaning as was assigned to the term under the Families First Coronavirus Response Act. Thus, “individual” means:

  • An immediate family member,
  • Someone who regularly resides in the employee’s home, or
  • A similar person with whom the employee has a relationship that creates an expectation that the employee would care for the person.

For this purpose, an individual doesn’t include persons with whom the employee has no personal relationship. Comparable provisions apply for the equivalent credits for self-employed individuals.

Due diligence

There are other details to consider addressed in IRS News Release 2021-160. Employers should undertake due diligence when determining and substantiating their eligibility for the ARPA’s paid sick leave or paid family leave credits. Our firm can help you better understand and follow the rules.

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