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COVID-19 Paid Leave Tax Credit for Small Businesses

The American Rescue Plan provides assistance in the form of tax credits to small employers who provide paid time off to employees for situations related to COVID-19 vaccination or illness. Small business owners may claim these credits on their quarterly taxes, but the deadline to file is just around the corner. Here’s what you need to know to determine if your small business is eligible and how to benefit from these tax credits.

How to claim the paid leave tax credit?

Businesses may receive tax credits for wages of up to 80 hours of paid sick leave in an amount of either:

  1. The employee’s regular wage, capped at $511/day, up to a total of $5,110 if the employee was sick or quarantining, awaiting the results of a COVID-19 test, or obtaining or recovering from a vaccine; or
  2. Two-thirds of the employee’s regular wage, capped at $200/day, up to a total of $12,000, if the employee was taking time off to care for someone quarantining or to provide child care due to COVID-19 school closures. Eligible employers report their total paid sick and family leave wages for each quarter on their quarterly federal employment tax return, usually Form 941.

Who’s eligible?

  • Businesses with less than 500 employees
  • Businesses that offer paid sick or family leave to employees between April 1, 2021 and September 30, 2021
  • Businesses that have employees who take paid leave due to COVID-19 including for illness, quarantine, getting tested or vaccinated, or caregiving for children who are eligible for the vaccine or become ill.

Additional information

  • If the amount of the credit exceeds a business’s portion of its payroll taxes, then the excess will be paid directly back to the business.
  • Apply before September 30, 2021 to claim your credit!

For more information visit the Internal Revenue Service’s guidelines.

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