May 4, 2021
It’s not your typical tax relief. And while it’s available for only a small window of time, it’s tax relief nonetheless. Last month, the IRS issued guidance explaining how employers, including school districts, can claim tax credits under the American Rescue Plan Act of 2021 (“Act”).
The Act allows school districts to claim refundable tax credits to obtain reimbursement for the cost of providing paid sick and family leave to employees due to COVID-19. School district employees may also have taken leave to receive COVID-19 vaccinations or recover from a condition related to vaccinations. The employees must not have been able to work or telework due to COVID-19-related reasons. The “catch” is that the tax credits are only available for paid leave taken from April 1, 2021, through September 30, 2021.
The paid leave credits are tax credits against the employer’s share of the Medicare tax. The tax credit for paid sick leave wages is equal to the sick leave wages paid for COVID-19-related reasons for up to two weeks (80 hours), limited to $511 per day and $5,110 in the aggregate, at 100 percent of the employee’s regular rate of pay. A tax credit is also available for paid family leave. The amount of the credits may increase depending on health plan expenses and contributions due to collectively bargained benefits.
Employers can use the federal employment tax return forms (Form 941) to report the requisite information. This information consists of the total paid sick and family leave wages, along with the eligible health plan expenses, collectively bargained contributions, and the employer’s share of social security and Medicare taxes on paid leave wages. Set-aside options and advances are available as well.
As with most tax laws, the devil is in the details. An overview of the tax credit is available here. If you have questions or require additional information, we are ready and able to assist you.