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ARPA tax credits available for voluntary paid leave

Updated: May 4, 2023

On April 29, 2021, the IRS issued guidance that gives clarifying information regarding employer tax credits available for voluntary paid sick and family leave made available under ARPA.

ARPA extends tax credits to eligible employers for providing paid sick and family leave from April 1, 2021 through September 30, 2021. Eligible employer may receive a refund for wages paid for leave taken by employees who weren’t able to work in person or remotely due to reasons related to COVID-19 previously covered under the FFCRA, but adds taking leave to receive a COVID-19 vaccine and to recover from any injury, disability illness or condition related to getting a vaccine.

The IRS fact sheet clarifies that an eligible employer for this timeframe only is any business, including tax-exempt organizations and non-federal governmental employers, with less than 500 employees.

The IRS confirms again that the ARPA tax credits are applied against the employer’s share of Medicare payroll tax and can be claimed on the quarterly tax return (Form 941). If the amount of the leave exceeds the credit applied to the employer’s Medicare tax due, the employer is entitled to a refund.

This provision became entirely optional for employers after December 31, 2020. Therefore, eligible employers wanting to offer paid sick and family leave should work with their CPA or tax counsel to apply for the credit.

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