On April 1, 2020, the Families First Coronavirus Response Act (FFCRA) went into effect, requiring employers to provide employees with paid sick leave (PSL) and expanded leave under the Family and Medical Leave Act (EFMLA) and enabling employers to recoup the cost of these leaves through tax credits. The IRS has issued guidance for employers with regard to obtaining and processing these tax credits.
Employers may claim tax credits for PSL and EFMLA taken between April 1, 2020 and December 31, 2020. Eligible Employers may either claim the credits on their federal employment tax returns (Form 941, Employer’s Quarterly Federal Tax Return), or reduce their federal employment tax deposits by the dollar amount paid out for PSL and EFMLA. Sometimes the amount needed to pay out PSL or EFMLA wages exceeds the amount that the employer has set aside to pay its federal employment taxes. If the leave wages exceed the employer’s federal employment tax deposits, the employer can file for an advance credit for the remaining wages by filing a Form 7200, Advance Payment of Employer Credits Due to COVID-19
In order to claim tax credits for employee leave, employers must document the need for leave. A written statement from the employee containing the following information is required:
· The employee’s name;
· The date or dates for which leave is requested;
· A statement of the COVID-19 related reason the employee is requesting leave and written support for such reason; and
· A statement that the employee is unable to work, including by means of telework, for such reason.
If the employee is requesting leave due to a quarantine order or on the advice of a health care provider to self-quarantine, the statement from the employee should include the name of the governmental entity ordering quarantine or the name of the health care professional advising self-quarantine, and, if the person subject to quarantine or advised to self-quarantine is not the employee, that person’s name and relation to the employee.
In the case of a leave request based on a school closing or child care provider unavailability, the statement from the employee should include the name and age of the child (or children) to be cared for, the name of the school that has closed or place of care that is unavailable, and a representation that no other person will be providing care for the child during the period for which the employee is receiving family medical leave and, with respect to the employee’s inability to work or telework because of a need to provide care for a child older than fourteen during daylight hours, a statement that special circumstances exist requiring the employee to provide care.
Employers must maintain these records, among other records relating to sick and family leave, including:
· Documentation to show how the employer determined the amount of qualified PSL and EFMLA wages paid to employees, including records of work, telework and qualified sick leave and qualified family leave.
· Documentation to show how the employer determined the amount of qualified health plan expenses that the employer allocated to wages.
· Copies of any completed Forms 7200 that the employer submitted to the IRS.
· Copies of the completed Forms 941, Employer’s Quarterly Federal Tax Return, that the employer submitted to the IRS.
These records must be retained for at least four years.
Wages paid out as PSL and EFMLA are treated the same as regular wages. They are considered wages for the purposes of certain benefits, such as 401K plans. The employee may have deductions made for health insurance, retirement plans, and other salary reductions, subject to an agreement with the employer. PSL and EFMLA wages are taxable income, and employers should withhold Social Security, Medicare, and federal income tax.
myHRcounsel provides sample PSL and EFMLA request forms that allow employers to enter all information necessary for employers to retain for their records and claim tax credits.