The information in this post was provided by the U.S. Department of Labor. This article is for educational purposes and does not constitute legal, financial, or tax advice. For specific advice applicable to your business, please contact a professional.
Hello Seller Community,
I’m here to share information about the American Rescue Plan Act (ARP) and how you can claim tax credits to help your employees stay healthy in the wake of the COVID-19 pandemic. The American Rescue Plan Act aims to help keep your workforce healthy, give employees time to get a COVID-19 vaccine or recover after receiving the vaccine.
- It’s easy to claim as many eligible employers already report total paid sick and family leave wages for each quarter on their federal employment tax return.
- Easily file a claim or take the opportunity to keep federal employment taxes that you would have otherwise deposited. See ‘How to file a claim’ below.
What is it?
The American Rescue Plan Act of 2021 (ARP) allows any employer with fewer than 500 employees, and certain governmental employers, to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19. This includes leave taken by employees to receive or recover from COVID-19 vaccinations.
The ARP tax credits are available to eligible employers that pay qualified sick and family leave to employees who take leave from April 1, 2021, through September 30, 2021.
Who is eligible?
Employers:
An eligible employer is any business, including a tax-exempt organization, with fewer than 500 employees.
An eligible employer also includes a governmental employer, other than the federal government and any agency or instrumentality of the federal government.
Self-employed individuals are eligible for similar tax credits. See ‘How to file a claim’ below.
Employees:
Eligible employers are entitled to tax credits for wages paid for leave taken by employees who are not able to work or to telework (work remotely) due to reasons related to COVID-19, including leave taken to receive COVID–19 vaccinations or to recover from any injury, disability, illness or condition related to the vaccinations.
These tax credits are available for wages paid for leave from April 1, 2021, through September 30, 2021.
How do I file a claim?
Eligible employers report their total paid sick and family leave wages (plus the eligible health plan expenses, collectively bargained contributions, and the eligible employer's share of Social Security and Medicare taxes on the paid leave wages) for each quarter on their federal employment tax return, usually through Form 941, Employer's Quarterly Federal Tax Return.
Form 941 is used by most employers to report income tax and Social Security and Medicare taxes withheld from employee wages, as well as the employer's own share of Social Security and Medicare taxes.
In anticipation of claiming the credits on the Form 941, eligible employers can keep the federal employment taxes that they otherwise would have deposited including:
- federal income tax withheld from employees, the employees' share of Social Security and Medicare taxes;
- and the eligible employer's share of Social Security and Medicare taxes with respect to all employees up to the amount of credit for which they are eligible.
The Form 941 instructions explains how to reflect the reduced liabilities for the quarter related to the deposit schedule.
If an eligible employer does not have enough federal employment taxes set aside for deposit to cover amounts provided as paid sick and family leave wages (plus the eligible health plan expenses, collectively bargained contributions, and the eligible employer's share of Social Security and Medicare taxes on the paid leave wages), the eligible employer may request an advance of the credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. The eligible employer will account for the amounts received as an advance when it files its Form 941, Employer's Quarterly Federal Tax Return, for the relevant quarter.
Self-employed individuals may claim comparable tax credits on their individual Form 1040, U.S. Individual Income Tax Return.
For more information, reach out to your accountant or contact the IRS directly.
What should I bring to my accountant or payroll provider?
This IRS Fact Sheet has put together a summary of the information you need here: Employer tax credits for employee paid leave due to COVID-19.
If you use Square Payroll, visit our Support Center to learn more about processing emergency leave pay through Square Payroll.
Important dates
These tax credits are available for wages paid for leave from April 1, 2021, through September 30, 2021.
Learn more about the American Rescue Plan and resources for employers and employees online.
️ Helen
Seller Community Manager
