Which COVID-19 tax credits are ending Sept. 30?
The American Rescue Plan Act of 2021 gives some small and mid-sized employers tax credits for providing employees with paid sick and family leave when they cannot work for a reason related to COVID-19. The tax credits are a dollar-for-dollar reimbursement that employers can use to keep employees despite an absence due to COVID-19.
The tax credits are only available for paid leave between April 1, 2021 and Sept. 30, 2021. They apply to the employer's share of the Medicare withholding. They are fully refundable, so the credit will apply even if it exceeds the amount of the Medicare tax.
Employers must act to get the credit. They should report their total paid sick and family leave wages through Form 941, the Employer's Quarterly Federal Tax Return. Employers can actually keep the funds they would have otherwise deposited if they plan to claim the credit. If an employer is short on funds, they can also request a credit advance using Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Employers may also qualify for the new credit for COBRA premium assistance payments, which end Sept. 30, 2021. This benefit provides 100% coverage of monthly health insurance premiums at no cost to the employee or employer.
What do businesses need to do to qualify for COVID-19 tax credits?
Qualifying employers must have fewer than 500 employees. The credit is specifically designed to account for leave related to employees who cannot work or telework for reasons related to COVID-19. It includes:
- Leave taken to get the COVID-19 vaccination.
- Leave to recover from any illness or condition related to the vaccination.
- Contracting COVID-19.
- Caring for family members who have contracted COVID-19.
- Quarantine periods related to COVID-19.
- Experiencing COVID-19 symptoms and attempting to get a medical diagnosis or test result.
The leave time must have occurred between April 1, 2021 and Sept. 30, 2021.
The credit is divided into two parts:
- Paid sick leave wages — It covers sick leave wages of up to two weeks, with a limitation of $511 per day and $5,110 overall. It covers 100% of the employee's salary up to that limitation.
- Paid family leave wages —It addresses paid family leave wages up to 12 weeks, with a limitation of $200 per day and $12,000 total, at two-thirds the employee's pay rate.
The credit is increased for allocable health plan expenses, certain collective bargaining benefits, and the employer's share of Social Security and Medicare taxes paid, but only up to the caps noted above.
Can self-employed individuals take advantage of the tax credits for businesses?
In short, yes. The benefits, however, are slightly different.
A self-employed person for purposes of the credit includes anyone who regularly carries on any trade or business. To receive the credit, they must qualify for the expanded paid leave as if they had an employer.
The credit applies to the self-employed individual's federal income taxes up to the sick leave or paid family leave caps noted above. The limitation is based on the "average daily self-employment income" in the current or prior tax year.
The maximum number of days that a self-employed individual can take is 10, which may be less than the number available to an employee. Self-employed individuals who also have employers might qualify for two levels of credits in some cases.
What happens if the business misses the deadline?
The credit does not apply to leave after Sept. 30, 2021. Employers, however, may actually claim the credit when they file Form 941 for the third quarter (July through September), which is due Oct. 31, 2021. If you requested credits from April through June, you should have already filed your Form 941 by July 31.
Failing to file Form 941 on time may waive your right to claim these credits. It can also result in penalties and interest. Learn more by speaking with the Rocket Lawyer On Call® attorney about your tax situation.
Are other COVID-19 relief programs available?
The Small Business Administration provides a helpful list of COVID-19 relief programs, including:
- Paycheck Protection Program.
- COVID-19 EIDEL (temporary loss of revenue related to COVID-19).
- Shuttered Venues Grant.
- Restaurant Revitalization Fund.
- SBA debt relief.
You can also get help from the Rocket Lawyer Tax Legal Help Center or visit the COVID-19 Legal Help Center for additional information and resources.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.