Adults in all states are now eligible to receive the COVID-19 vaccination. With vaccine supplies plentiful, the Biden administration is now shifting its focus to address vaccine hesitancy. Surveys have shown that some Americans who aren’t planning to get vaccinated might consider it if their employer offered them paid time off, a gift card, cash bonus, or another incentive to get vaccinated.

Under the American Rescue Plan (ARP), practices with fewer than 500 employees can claim refundable payroll tax credits to reimburse 100% of the cost of providing paid sick and family leave to their employee due to COVID-19, including leave taken by employees to receive or recover from vaccinations. For example, if the practice offers an employee a paid day off to get vaccinated or to recover from a vaccination, the practice can receive a tax credit equal to the wages paid for those days off, up to the limits discussed below.

The law allows your practice to claim payroll tax credits for up to 80 hours of paid sick leave taken on or before September 30, 2021, in an amount equal to the employee’s regular wage, capped at $511 per day, up to a maximum of $5,110. These tax credits are claimed against your practice’s share of its Medicare payroll tax, as reported on IRS Form 941, the Employer’s Quarterly Federal Tax Return. These credits are refundable, which means your practice is entitled to payment of the full amount of the credits even if it exceeds its Medicare payroll tax liability. Self-employed individuals can claim comparable credits on their personal tax return (Form 1040).

President Biden has also encouraged employers to offer incentives, such as gift cards or bonuses, to encourage employees to get vaccinated. Such payments made by the practice to staff members are tax-deductible and should qualify as tax-free Disaster Relief Payments under Section 139 of the tax law.

Updated May 1, 2021. Originally published April 26, 2021.