Wednesday, April 1, 2020

Coronavirus Update 4-1-2020: The mechanics of the tax credit for paid family and sick leave under the FFCRA

One of the questions I have received the most since the passage of the Families First Coronavirus Response Act is how employers claim the tax credit available under the Act for paid leave provided to employees.

Late yesterday, the IRS published a detailed list of FAQs explaining all of the mechanics of this tax credit. I want to focus on the key employment law piece of these FAQ, how an employer should substantiate its eligibility for tax credits, i.e., the documentation you need to keep.

The IRS discusses this important issue in Questions 44 – 46. I’ll break it all down for you here.

What information should an “Eligible Employer” (a business with fewer than 500 employees) receive from an employee to substantiate eligibility for the sick leave or family leave tax credits?

The IRS says that an employee’s leave request must be in writing and must include:
  1. The employee’s name;
  2. The date(s) for which leave is requested;
  3. A statement of the coronavirus related reason the employee is requesting leave and written support for such reason; and
  4. A statement that the employee is unable to work, including by telework, for such reason.

Additionally, for a leave request based on a quarantine order or self-quarantine advice (the employee’s or someone else’s for whom the employee is providing care), the employee’s statement 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.

For a leave request based on a school closing or child care provider unavailability, the statement from the employee should include:
  1. The name and age of the child (or children) to be cared for; 
  2. The name of the school that has closed or place of care that is unavailable; and
  3. 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.

Also, note that there is a cut-off age at age 14 for care during daylight hours. An employee unable to work or telework during daylight hours because of a need to care for a child older than age 14 must also provide a statement that special circumstances exist requiring the employee to provide care.

Additionally, for all paid leave under the FFCRA for which an employer claims a tax credit, the employer must also provide:
  1. Documentation to show how the employer determined the amount of qualified sick and family leave wages paid to employees that are eligible for the credit, including records of work, telework and qualified sick leave and qualified family leave.
  2. Documentation to show how the employer determined the amount of qualified health plan expenses that the employer allocated to wages. 
  3. Copies of any completed Forms 7200, Advance of Employer Credits Due To COVID-19, that the employer submitted to the IRS.
  4. Copies of the completed Forms 941, Employer’s Quarterly Federal Tax Return, that the employer submitted to the IRS (or, for employers that use third party payers to meet their employment tax obligations, records of information provided to the third party payer regarding the employer’s entitlement to the credit claimed on Form 941).

Employers must keep these records for at least 4 years after the date the tax becomes due or is paid, whichever comes later, and should be available for IRS review.

I encourage all employers to have a conversation with their accountant and/or tax lawyer before filing your next quarterly payroll taxes to make sure you are claiming this exemption correctly.

* Image by Steve Buissinne from Pixabay