Vaccinated? Claim Tax Credits for Your Employees and YourselfSmall Business
As the nation suffers from the ravages of the super-contagious COVID-19 delta variant, the federal government desperately wants all American workers and their families to get vaccinated.
If you have employees, you probably feel the same way.
Indeed, more and more employers are implementing vaccine mandates—a trend that will likely grow as the FDA gives final approval to the various COVID-19 vaccines.
One way to encourage vaccinations is to give employees paid time off to get the shot. Through September 30, employers who give their employees paid time off to get vaccinated can collect a refundable sick leave tax credit.
But there’s more.
The only thing better than getting an employee vaccinated is getting his or her entire household vaccinated as well. So employers can also collect a sick or family leave credit if they give employees paid time off to help family members and other household members get the vaccination or recover from side effects of the vaccination.
What if you are self-employed and have no employees? The government wants to encourage you to get vaccinated, too. You can collect for yourself a sick and/or family credit similar to the employer credits.
The credits can add up. The combined (and refundable) sick and family leave credits add up to a maximum of $17,511 per employee or self-employed individual.
Tax Credits for Employers
A business qualifies for the sick and family leave credits established by the American Rescue Plan Act of 2021 if it
- has under 500 employees,
- offers paid sick or family leave to its employees through September 30, 2021, and
- has employees who take paid leave due to COVID-19, including for illness, quarantine, getting tested or vaccinated, or caregiving.
Both the sick and family credits are available where an employee is given paid leave to get vaccinated or to recover from vaccination. The IRS has issued new guidance indicating that eligible employers can also claim both credits for providing leave to employees who:
- accompany a family or household member, or certain other individuals, to get the COVID-19 vaccination, or
- care for a family or household member, or certain other individuals, as they recover from getting the vaccination.
The credits are available where an employee accompanies or cares for
- 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.
There is no credit if an employee accompanies or cares for a person with whom he or she has no personal relationship.
Amount of sick leave credit. If a full-time employee is given paid time off to deal with his or her own vaccination or recovery, the employer may claim a sick leave credit equal to the employee’s regular wage (including the employer’s health insurance, Social Security, and Medicare contributions), capped at $511 per day, up to $5,110 in total.
If an employee takes time off to care for other household members’ vaccination needs, the credit is limited to $200 per day, up to $2,000. The sick leave credit is limited to wages for up to 10 days (80 hours).
Amount of family leave credit. This credit is limited to two-thirds of a full-time employee’s regular wage for up to 12 weeks (60 days), capped at $200 per day, up to $12,000 in total.5
The credits are also available for part-time employees who are normally scheduled to work fewer than 40 hours per week. Such employees may take paid sick and/or family leave based on the number of hours they are normally scheduled to work.
The sick and family leave credits are refundable—a business gets the full amount even if it exceeds its tax liability.
A business can claim this credit in advance by reducing the employer payroll taxes (Social Security and Medicare taxes) it otherwise would have deposited with the IRS for the third quarter of 2021. If the amount of the credit exceeds a business’s payroll taxes, the business may request an advance by filing IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.
You can’t claim both credits for the same employee hours. So employers should use the sick leave credit first where the employee takes time off for his or her own vaccination and/or recovery.
Both credits are subject to non-discrimination rules. You can’t limit them to highly compensated, full-time, or long tenured employees.
The documentation requirements for these credits are modest. You should have your employees make a written request for sick or family leave, to include
- the date or dates for which leave is requested, and the date of the vaccination (if applicable),
- a statement of the COVID-19-related reason the employee is requesting leave, and
- a statement that the employee is unable to work, including by means of telework, for that reason.
The employer should also document how the employee’s sick and/or family leave credits were calculated.
Tax Credits for the Self-Employed
If you’re self-employed, you’re entitled to sick and family leave tax credits if, during the period from April 1, 2021, through September 30, 2021, you were unable to work or telework because you were
- obtaining a COVID-19 vaccination, or
- recovering from any injury, disability, illness, or condition related to such vaccination.
As is the case with the employer credits, you can obtain sick or family leave credits if you need to accompany a family or household member to get a COVID-19 vaccination, or to care for such person after they get vaccinated.
Sick leave credit. The amount of the self-employed sick leave credit is the same as for employers. If you take time off to deal with your own vaccination or recovery, you can get a credit equal to 100 percent of the average net self employment income you earn per day, capped at $511 per day.
If you take time off to help a household member get vaccinated or recover, the credit is reduced to 67 percent of your net self-employment income, capped at $200 per day. The sick leave credit is for a maximum of 10 days (80 hours). Thus, the maximum sick leave credit is $5,110.
You figure your average daily net self-employment income by dividing your total net self-employment income for the year (or the prior year) by 260. You may use the prior year if you earned more money that year (if you do this, you must note it on your Form 1040).
Family leave credit. Whether you take time off to deal with your own vaccination or that of a household member, the family leave credit is equal to 67 percent of your net self-employment income, capped at $200 per day, for 60 days (12 weeks). Thus, the maximum credit is $12,000.
Both the sick and family leave credits are refundable.
You claim them on new IRS Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, which you include with your Form 1040. But you have the option of claiming the credits in advance by reducing your quarterly income tax payments by the anticipated amount of the credit.
If both you and your spouse are self-employed, you may both claim a separate credit. A separate Form 7202 should be filed for each spouse.
You aren’t required to see a doctor to claim this credit. But you should create a record containing
- the dates you were unable to work or telework because you obtained or were recovering from a COVID-19 vaccination, or because you helped a family or household member do so, and
- a statement that you could not perform services in your business (including teleworking) because of the COVID-19 vaccination.
You don’t need to file this with your tax return. Just keep it with your tax records for at least six years.
Here are five takeaways from this article:
- Employers who give employees paid time off to get or recover from the COVID-19 vaccination can collect a sick leave credit of up to $511 per day for 10 days, plus a family leave credit of up to $200 per day for 60 additional days. This totals up to $17,511.
- Employers who give employees paid time off to help tax-law-defined household members get vaccinated and/or recover from the vaccination can get a sick leave credit of up to 10 days and a family credit of up to 60 days. The “helping household members” credits are capped at $200 per day, for a total of up to $12,000.
- Self-employed individuals who take time off to get vaccinated for COVID-19 can get a sick leave tax credit equal to 100 percent of their net self-employment income, capped at $511 per day for 10 days.
- Self-employed individuals who take time off to help tax-law-defined household members get vaccinated and/or recover from the vaccination can get a sick leave credit of up to 10 days and a family credit of up to 60 days. Both credits are equal to two-thirds of net self-employment income, capped at $200 per day.
- The two credits are refundable—you get the full amount even if it exceeds your tax liability. Employers can claim them in advance by reducing their payroll tax payments for the third quarter of 2021. If the amount of the credit exceeds a business’s payroll taxes, the business may request an advance by filing IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19. Self Employed individuals may reduce quarterly income tax payments by the anticipated amount of the credit.