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How to document leave requests and tax credits under the FFRCA

Apr 1, 2020

While the Families First Act creates paid leave obligations for smaller employers, companies are able to apply for relief through applicable tax credits.

Here's how to do it:

Employers eligible for tax credits for paid leave provided under the FFCRA can report their total qualified leave wages and the related credits for each quarter on their federal employment tax returns, usually Form 941: Employer’s Quarterly Federal Tax Return.

The tax credit may be applied to offset payroll taxes equal to the amount of qualifying leave that an employer paid, rather than deposit that amount with the IRS. The payroll taxes available for retention include:

  • withheld federal income taxes,
  • the leave-taking employees’ shares of Social Security and Medicare taxes,
  • the employer share of Social Security and Medicare taxes with respect to all employees.

Additionally, if the permitted reduction in deposits does not equal the qualified leave wages, the employer can file a Form 7200: Advance Payment of Employer Credits Due to COVID-19 to claim an advance credit for the remaining qualified leave wages it has paid for the quarter for which it did not have sufficient federal employment tax deposits.

In order to take advantage of these tax credits, employers providing their employees emergency paid sick leave or public health emergency leave should be sure to collect and maintain certain information and records needed for the tax credit applications. For both emergency paid sick leave and public health emergency leave, before an employee may take the leave, the employee must first provide the employer with the following information in writing supporting their leave request:

  • The employee’s name;
  • The date(s) for which leave is requested;
  • A statement of the qualifying reason for requesting leave; and
  • A statement that the employee is unable to work, including telework, for that reason.

In the case of leave based upon a quarantine, the employee’s statement must also include the name of the governmental entity ordering quarantine or the name of the health care professional advising self-quarantine. If the person subject to quarantine or who has been advised to self-quarantine is not the employee, then the statement must include that person’s name and relation to the employee.

In the case of leave based upon a school or childcare facility closing or childcare provider unavailability, the employee’s statement must also include: (1) the name and age of the child(ren) to be cared for; (2) the name of the place of care that is closed or unavailable, (3) a representation that no other person will be providing care to the child during the period for which the employee will be receiving leave, and (4) if the child is older than 14, a statement that special circumstances exist requiring the employee to provide care that makes the employee unable to work or telework during daylight hours.

Note that based on requirements (3) and (4), two parents cannot claim leave to care for the same child at the same time and there is a higher bar of “special circumstances” required for a parent to take leave to care for a child between 15 and 17 years old.

To claim the tax credits, the employer will also need to collect and maintain documents substantiating the information for the employee’s leave. These documents must include:

  • Documentation showing how the employer determined the amount of leave wages paid to employees that are eligible for the credit, including records of work, telework, and qualified leave;
  • Documentation showing 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; and
  • Copies of the completed Forms 941, that the employer submitted to the IRS.

The type of documentation supporting an employee’s leave may include, for example, a copy of the Federal, State or local quarantine or isolation order related to COVID-19 applicable to the employee, a written documentation by a health care provider advising the employee to self-quarantine due to concerns related to COVID-19, or a notice of closure that has been posted on a government, school, or day care website, or published in a newspaper, or an email from an employee or official of the school, place of care, or child care provider.

These documents must be maintained by the employer for at least four after the tax becomes due and be available for the IRS to review upon request.

Additional details on the specifics for obtaining tax credits can be found on the IRS’s website here.

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