New Tax Credit for Small Businesses

A new tax credit available for small businesses (500 employees or less), is designed to incentivize employees to receive one of the COVID-19 vaccines. The tax credit covers up to $511 per day per employee for activities associated with the vaccine, such as receiving the vaccine, quarantining, providing childcare for their children, or recovering from vaccine side effects. Research suggests that providing paid time off for reasons related to COVID-19 in 2020 prevented about 400 cases per day.¹

The tax credit aims to motivate workers who otherwise are on the fence about receiving the vaccine to obtain one by making sure they have paid time off. The financial backing for the tax credit comes from the 1.9 trillion dollar American Rescue Act that became law in March. Providing paid time off is optional under federal law for small businesses, if their employees request it. However, it may be mandatory under state law, such as in Colorado, which mandates that paid sick leave can be used for the vaccine and recovering from side effects.

Under this announcement, the tax credit for vaccine-related PTO started on April 1 and will end on September 30, 2021. Of particular interest to entrepreneurs and contractors is the application of a similar tax credit for self-employed individuals. The IRS has provided more information on receiving this credit and how to claim the credit on this fact sheet. Per a White House press release, “The paid leave tax credit that President Biden signed into the law in the American Rescue Plan ensures that no small businesses or non-profits will lose a single dollar by providing such paid leave to workers receiving a vaccination.” (Except, of course, for the business opportunity costs from employees taking leave, and the administrative burdens involved.)

Vaccine requirements mandated by employers remain muddy, as employers navigate the provision of incentives and motivating employees to receive the vaccine. Requiring the vaccine is difficult because of the varying degrees of social and political distrust of the vaccine. According to research conducted by the Society of Human Resource Management, 28% of respondents said that “they are willing to lose their jobs if their employer requires the COVID-19 vaccine.” While the vaccineis widely available, obviously not everyone wants one. In addition, there are disability and religious belief exemptions that employers must consider. However, encouraging the vaccine rollout through this new tax credit may be a way to encourage people to get it.

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¹See White House Press Release for more information regarding this data.

Featured ImagebyRebecca Sidebotham.