Small businesses can receive a federal tax credit for providing paid time off to employees to get vaccinated against COVID-19 and to recover from any side effects.

Eligible employers include businesses and tax-exempt organizations with fewer than 500 employees and certain governmental employers.

The IRS said that eligible employers who offer employees a paid day off to get vaccinated can receive a tax credit equal to the wages paid to employees for that day, up to certain limits.

Self-employed individuals are eligible for similar tax credits.

“This new information is a shot in the arm for struggling small employers who are working hard to keep their businesses going while also watching out for the health of their employees,” IRS Commissioner Chuck Rettig said in a statement.

“Our work on this issue is part of a larger effort by the IRS to help the nation recover from the pandemic.”

Refundable Credits

The tax credits provided in the American Rescue Plan Act of 2021 are available to eligible employers that pay sick and family leave from April 1 to Sept. 30, 2021.

The paid leave credits are tax credits against the employer’s share of the Medicare tax.

The tax credits are refundable, meaning the employer is entitled to payment of the full amount of the credits if it exceeds the employer’s share of the Medicare tax.

Eligible employers who anticipate claiming the credits on the employer’s quarterly federal tax return 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 Medical taxes with respect to all employees up to the amount of credit for which they are eligible.

If the eligible employer does not have enough federal employment taxes on deposit to cover the amount of the anticipated credits, the eligible employer may request an advance by filing IRS Form 7200 for advance payment of employer credits due to COVID-19.

Self-employed people may claim comparable credits on their federal income tax return.