Tax Credits for Small Businesses Providing Paid Leave to Get COVID-19 Vaccine

Tax Credits for Small Businesses Providing Paid Leave to Get COVID-19 Vaccine

In May 2021, the Internal Revenue Service (IRS) announced plans to reward small businesses that provide staff with paid leave to receive or recover from COVID-19 vaccinations. This is effectively an extension of the American Rescue Plan Act of 2021, which allows eligible business to claim tax credits in order to recoup the cost of providing family and sick leave throughout the COVID-19 pandemic.

How Do Tax Credits Work?

The US Government offers tax credits to incentivize people and businesses to take certain actions that benefit the US economy, the environment, local communities, and/or society as a whole.

Tax credits confer a dollar-for-dollar decrease in the amount of income tax an individual or organization is liable to pay. For example, if a business owes $5,000 in federal taxes but is eligible for a $5,000 tax credit, their net tax liability is reduced to zero.

When tax credits exceed the amount of taxes due, the difference is typically nonrefundable. However, the excess can be carried forward to the next tax year to mitigate future taxes in most cases.

Numerous general and industry-specific tax credits are available to American businesses today. In addition to federal tax credits, many states, counties, and cities within the United States also offer localized property or income tax credits for certain business expenditures and activities.

For example, some cities grant tax credits to businesses that are building local facilities. These credits are often negotiated individually on a piecemeal basis between the business and relevant government body, pertaining to a particular business and property.

The new arrangement covers paid leave for staff between April 21, 2021, and September 30, 2021, covering leave taken to receive or recover from COVID-19 vaccinations. The plan applies to organizations with less than 500 employees, as well as certain government employers. With a limit of $5,110 in the aggregate or $511 per day, the scheme enables employers to offset 100 percent of an employee’s regular rate of pay to cover up to two weeks of paid sick leave.

The Economic Impact of COVID-19

As a direct result of the COVID-19 pandemic, at least 50 percent of all households in America’s largest cities—New York City, Los Angeles, Chicago, and Houston—reported serious financial challenges. This included difficulties paying bills or funding medical care, as well as depleted savings.

Black and Latino households have been disproportionately affected by job and wage losses since the pandemic started, with more than 40 percent of households using up all or most of their savings. Approximately 20 percent of respondents reported that they were unable to fund medical care for serious problems, with 36 percent of households experiencing significant problems continuing to pay for their children’s education.

The American Rescue Plan Act

The American Rescue Plan Act is a stimulus program designed to support US businesses throughout the COVID-19 pandemic, with the objective of promoting business sustainability, safeguarding economic productivity, and protecting American jobs. The legislation means over $5 trillion has been allocated toward stimulus programs, including small business relief programs such as the economic injury disaster loan program and the paycheck protection program.

Stimulus programs created by the American Rescue Plan Act provide small businesses with generous tax incentives, creating tax credits such as the employee retention credit, the Families First Coronavirus Response Act credit, the continuation of health coverage credit, and the work opportunity credit.

In the United States, as in countries all over the world, the COVID-19 pandemic has wreaked havoc on various aspects of industry, adversely affecting financial markets, employment, travel, shipping, and various other industrial sectors. In addition to the significant human cost of the COVID-19 crisis, the virus caused an unprecedented economic crisis in America.

The National Bureau of Economic Research reported the steepest ever drop in quarterly economic output in the second quarter of 2020, with a decrease of 9.1 percent. To put this in context, prior to the COVID-19 pandemic, the US GDP had never dropped by more than 3 percent. Little wonder, then, that the US Government is doing all that it can to maximize vaccine uptake, to finally call time on COVID-19.

According to Axios, administration officials entered into talks with businesses after polls revealed that most employees would be willing to getting the shot if their employers provided access. As White House senior advisor for the COVID-19 response, Andy Slavit explains, tens of thousands of lives have been saved via the COVID-19 vaccination program so far, and now it is vital to reach everyone aged 16 and over.

The US government is keen to persuade employers to step up in support of COVID-19 vaccinations. It is believed that up to 50 percent of US employers will be eligible under the arrangement. The IRS has released information for employers explaining how the tax credit works and how to claim it on their quarterly tax filings, providing a downloadable factsheet on the IRS website.