IRS Clarifies COVID-19 Relief for Paid Leave and Flexible Spending Accounts
In response to the Coronavirus (COVID-19) crisis, the IRS has recently released guidance to:
- clarify how and when employers can claim paid sick and leave tax credits for reasons related to COVID-19, and
- remind taxpayers that certain COVID-19 equipment and testing are qualified medical expenses under savings plans.
Taxpayers may take advantage of these provisions in 2021.
Paid Sick and Family Leave for COVID-19
Small and midsize employers with less than 500 employees can claim refundable tax credits that reimburse them, dollar-for-dollar, for the cost of providing paid sick and family leave wages to their employees for leave related to COVID-19. This leave can be taken for the employee's own health needs or to care for family members. Certain self-employed individuals are entitled to similar credits, and can claim them on their Form 1040.
Employees may receive up to 80 hours of paid sick leave and up to an additional ten weeks of paid family leave to care for a child whose school or day care is closed due to COVID-19 precautions. The leave can be taken by employees who are dealing with quarantine orders or the COVID-19 illness.
Additionally, the American Rescue Plan of 2021 clarifies that eligible leave includes leave taken for employees to receive or recover from the COVID-19 immunization or to care for family members recovering from the immunization. The IRS has released FAQs including information on how to file for and compute the credits, as well how to receive advance payments for the credit.
The tax credits are eligible for periods of leave spanning April 1, 2020 through September 30, 2021.
COVID-19 Tests Are Eligible Medical Expenses
Savings accounts are valuable tools when it comes to managing the cost of health care, but taxpayers ought to be aware of whether the products they are purchasing can be reimbursed under the terms of the account. The cost of COVID-19 home test kits are eligible medical expenses that can be paid or reimbursed under health flexible spending arrangements (health FSAs), health savings accounts (HSAs), health reimbursement arrangements (HRAs), or Archer medical savings accounts (Archer MSAs).
Additionally, the cost of protective equipment such as masks, hand sanitizer, and sanitizing wipes are eligible expenses as well.