The IRS has now provided guidance to employers on claiming tax credit and reimbursement for employer-paid COVID-19 related sick leave and FMLA leave under the Families First Coronavirus Response Act (“FFCRA”). Detailed guidance is available here.
The FFCRA requires employers to provide paid leave time for some COVID-19 related absences, as described in our previous alerts. Businesses and tax-exempt organizations with fewer than 500 employees who are subject to FFCRA leave requirements are eligible for reimbursement of amounts paid for qualifying leaves.
How to Claim the Credits:
Eligible employers will report the amounts they have paid in connection with FFCRA qualified leaves on their federal employment tax returns. Those qualifying amounts paid in connection with FFCRA leaves will be treated as credits against the employer’s employment tax obligations for the affected periods.
Employers can receive the available credits in several ways:
- By requesting an advance from the IRS using Form 7200, Advance Payment of Employer Credits Due to COVID-19 and faxing the completed form to 855-248-0552;
- By reducing the withheld federal taxes (federal income tax withholding and both sides of the Social Security and Medicare withholding with respect to all employees) the employer would otherwise deposit with the IRS by the amount of qualified leave wages paid to employees on FFCRA leaves during the same period; or
- For credit amounts that exceed the employer’s employment tax obligations (and so cannot be taken in the form of a credit), through a direct payment from the IRS that will be paid within two weeks and treated as a refund of overpaid employment taxes.
How to Substantiate Tax Credit Eligibility:
To substantiate tax credit eligibility for qualified leave wages employers must collect and keep the following records for at least 4 years after the tax becomes due or is paid, whichever is later:
- A written request for leave from the employee with certain required information, including verification from the employee of the reason leave is needed, documentation of quarantine orders that necessitate leave, and documentation of childcare circumstances that require leave. Updated leave request forms containing the required documentation and verification are available here: Updated Forms to Request Federal Paid Sick Leave and FMLA for COVID-19
- Documentation of all leave amounts paid, hours of work by affected employees (including remote/telework), and the amount of qualified health plan expenses allocated to wages paid for COVID-19 related leave.
- Copies of all completed IRS forms relating to leaves and tax credits.
We encourage all employers to work closely with their payroll services and accountants to establish separate pay codes for COVID-19 related leaves, and to submit required forms for advancement, credit or reimbursement of leave payments.
Please contact any member of our employment law or business law teams to discuss your questions about the FFCRA, employer obligations with respect to FFCRA leaves, these tax credit issues, or other COVID-19 related concerns.