Claim Your Missed 2021 COVID Sick and Family Leave Credits Today

Did you or your corporation claim the 2021 sick and family leave credits?

If not, you can do it now with an amended return(s).

Also, if you didn’t claim the 2021 credits, it’s likely you did not claim the 2020 credits. If that’s the case, it’s possible that you could claim all 2020 and 2021 available credits of up to $32,220 on your 2021 tax return(s).

You read that right: with at least $143,866 of 2021 net profits on Schedule C, or with the equivalent in W-2 wages from your corporation, you could qualify for up to $32,220 in refundable tax credits, as follows:

  • Up to $15,110 under the 2020 rules, and
  • Up to $17,110 under the 2021 rules.

The 2020 rules apply

  • From April 1, 2020, through December 31, 2020 (2020 tax returns), and
  • From January 1, 2021, to March 31, 2021 (2021 tax returns).

    The 2020 rules also apply from January 1, 2021, through March 31, 2021, and you claim those credits on your 2021 return.

    Key Point: The maximum total credits under the 2020 rules may not exceed $15,110. You could have some of the credits on your 2020 return and some on your 2021 return. Or you could have all the credits on the 2020 or 2021 return.

    Let’s turn to the new 2021 tax credit using the self-employed taxpayer before looking at the corporation.

    …with at least $143,866 of 2021 net profits on Schedule C, or with the equivalent in W-2 wages from your corporation, you could qualify for up to $32,220 in refundable tax credits…

    2021 Self-Employed Sick Leave Tax Credit

    With self-employed net income of at least $143,866, you can qualify for a maximum credit of $511 a day for up to 10 days when—during the period from April 1, 2021, through September 30, 2021—you were unable to perform services as an eligible self-employed individual because of one or more of the following reasons.

    • You were subject to a federal, state, or local quarantine or isolation order related to COVID-19.
    • You were advised by a health care provider to self-quarantine due to concerns related to COVID-19.
    • You were experiencing symptoms of COVID-19 and seeking a medical diagnosis.
    • You were seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19.
    • You were exposed to COVID-19 or were unable to work pending the results of a test or diagnosis.
    • You were obtaining immunization related to COVID-19.
    • You were recovering from any injury, disability, illness, or condition related to such immunization.

    Key Point: The above reasons give you far more ability to qualify for the up to $511 a day in credits for 2021 than the narrower reasons that applied in 2020.

    In addition to the possibility of 10 days at up to $511 a day, you can qualify for up to 60 days at $200 a day if, during the period from April 1, 2021, through September 30, 2021, you were unable to perform services as an eligible self-employed individual for any of the reasons listed above. This is new for 2021 and far broader than what you had in 2020.

    And of course, you also have the days not worked because of certain coronavirus-related care you provided to a son or daughter whose school or place of care was closed or whose childcare provider was unavailable for reasons related to COVID-19.

    With Schedule C net income of $143,866 or more, your maximum 2021 tax credits for the period from April 1, 2021, through September 30, 2021, total $17,110:

    • $5,110 under the 10-day category, plus
    • $12,000 under the 60-day category.

    With income less than $143,866, you qualify for less credit, but it still could be a healthy number.

    Amending Your 2021 Tax Return

    You were supposed to claim the credit by filing IRS Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, with your 2021 Form 1040. You can still claim the credit by amending your 2021 tax return.

    You do this by filing a completed 2021 Form 7202 with IRS Form 1040-X. If your spouse was also self-employed and qualified for a credit, you must each file a separate Form 7202.

    Key Point: Your self-employed spouse can also qualify for maximum tax credits from 2020 and 2021 of up to $32,220, giving the two of you a maximum of $64,440.

    You must file Form 1040-X within three years (including extensions) after the date you filed your original return for 2021. If you filed your original 2021 return early (for example, March 1, 2022), your return was considered filed on the April 15, 2022, due date. But if you had an extension to file until October 15, 2022, and you filed earlier, your return was considered filed on the earlier date.

    Thus, if you filed your 2021 return anytime through the April 15, 2022, due date, you have until April 15, 2025, to amend your return to claim the sick and family leave credits. If you filed your return on October 15, 2022, you have until October 15, 2025, to file your amended return. If you filed your return anytime between April 16, 2022, and October 14, 2022, you have three years from the date you filed.

    But don’t procrastinate. Get that money working for you as soon as possible.

    Documentation

    You need not include with your amended tax return any proof that you qualified for the credit. But you should have documentation in your records.

    Claiming 2021 COVID Sick and Family Leave Credits for C and S Corporation Owners

    If you operate your business as a C or an S corporation, you should be classified as its employee for tax purposes.

    Now, here’s good news: if your employer corporation paid you while you were not working because of COVID-19, your corporation may have qualified for sick or family leave tax credits.

    The rules for qualification are the same as those that applied to the self-employed taxpayer discussed above.

    You find the April 1, 2021, through September 30, 2021, corporate tax credits in two different tax code sections, as follows:

    • Section 3131 for sick leave credits. (These can create up to $511 a day in credits).
    • Section 3132 for paid family leave credits. (These are the credits of up to $200 a day.)

    Child Needed: To qualify for family leave credits from January 1, 2021, through March 31, 2021, you use the 2020 rules where the employee must have been unable to work due to COVID-19-related school closures or childcare disruptions.

    Child Optional: For April 1, 2021, through September 30, 2021, the credit was expanded to include all the grounds for COVID-19-related paid sick leave.

    If the corporation qualified for the sick and family leave credits but did not claim them on the 2021 tax returns, it should file amended payroll tax returns using Form 941-X, which has special worksheets (worksheets 1 and 3) and several line items just for COVID-19-related corrections. You must file a separate Form 941-X for each quarter you are correcting.

    There are two ways to claim the credits: the adjustment process and the claim process.

    Adjustment Process: Your corporation claims the credit against the regular payroll tax due on its next Form 941 and files an adjusted return on Form 941-X to report the change. This is the fastest way to get your credit.

    Heads up: to use the adjustment process, you must file Form 941-X more than 90 days before the statute of limitations expires.

    Claim Process: With the claim process, you file Form 941-X and claim a refund of payroll tax in the amount of your credit. It will take longer to obtain your credit this way, because the IRS must process your claim.

    You have a three-year statute of limitations for correcting payroll tax overpayments on Form 941-X. For these purposes, all four Forms 941 filed for a calendar year are considered filed on April 15 of the following year if filed before that date.

    For example, the four Forms 941 for 2021 are considered filed on April 15, 2022.9 This means you have until January 15, 2025, to use the adjustment process to claim the sick and family leave credits and until April 15, 2025, to use the claim process.

    To prevent employers from enjoying a double benefit, they must include the full amount of any family leave credit (and any allocable qualified health plan expenses and the employer’s share of the Medicare tax) they receive in gross income. The employer may deduct as a business expense the employee wages used to calculate the credits, plus allocable health plan expenses and the employer’s share of the Medicare tax. The deduction reduces some of the benefits from the credit.

    No Double Benefit

    Any employee wages taken into account for the COVID-19 sick or family leave credit on or after April 1, 2021, cannot be taken into account for any of the following:

    • Paycheck Protection Program loan forgiveness
    • Employee retention credits
    • A grant under Section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act
    • Restaurant revitalization grants
    • Indian employment credits
    • Differential wage payment credits
    • Non-COVID-19 employer credit for paid and family leave
    • Work opportunity credit

    Takeaways

    The 2020 sick and family leave tax credit rules apply to the period from January 1, 2021, through March 31, 2021. Thus, you could

    • Claim all your 2020 sick and family leave credits on your 2020 return,
    • Claim all your 2020 sick and family leave credits on your 2021 return, or
    • Claim some of your 2020 sick and family leave credits on your 2020 return and some on the 2021 return.

    For the period from April 1, 2021, through September 30, 2021, you have many more reasons to qualify for not only the sick leave credit of up to $511 a day, but also the family leave credit of up to $200 a day.

    Self-employed individuals who failed to claim the credit may still do so by amending their 2021 tax return. They must file a completed 2021 Form 7202 along with IRS Form 1040-X.

    If you operate your business as a corporation and failed to claim the sick and family leave credits, you can amend your payroll tax returns using Form 941-X.


    We hope that you now have some understanding of how to make the most of the available 2021 COVID Sick and Family Leave Credits. If you find yourself needing expert guidance to navigate the complexities of available tax credits and ensure you receive the financial relief you deserve and optimize your financial benefits, look no further than Morris + D’Angelo.

    At Morris + D’Angelo, we specialize in providing expert financial guidance and assistance to taxpayers like you. If you have questions or concerns about how you might navigate the complexities with expert insights and actionable strategies to help maximize your tax benefits and boost your bottom line, our expert team is here to help.

    Don’t let complex tax laws hold you back – contact us at Morris + D’Angelo to learn how we can support your financial success! This is our Expertise!


    Parts of this article are published with permission from Bradford Tax Institute, © 2021 Daniel Morris, Morris + D’Angelo


    Daniel Morris
    Daniel frequently provides Media Content via Workshops, Podcasts, and Printed Articles on topics like Bitcoin and Cryptocurrency, Wealth Preservation and Planning, Global Banking, and many other high-level financial topics that serve and demonstrate the Value of our Global Network that should be of interest to those who need Private High-Wealth Services.

    If you would like Daniel to speak to you or your Professional Group and bring clarity about the new frontier of the new business tax law changes. Please contact us.

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    Daniel Morris, Dan Morris, CPA, Portland Oregon, Dragon Slayer


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