The IRS has issued guidance for employers with under 500 employees explaining how to claim a tax credit for emergency paid sick leave (“EPSL”) and expanded FMLA (“EFMLA”) under the Families First Coronavirus Response Act (“FFCRA”). In particular, this guidance includes FAQs that provide information regarding the requirements, limitations and applications for the tax credits.
Background. FFCRA requires employers to provide paid leave through two separate provisions: (i) the Emergency Paid Sick Leave Act, which entitles employees to up to 80 hours of paid sick time when they are unable to work due to certain reasons related to COVID-19; and (ii) the Emergency Family and Medical Leave Explansion Act, which entitles workers to certain paid family and medical leave.
FFCRA provides that employers subject to the EPSL and EFMLA requirements may be entitled to fully refundable tax credits to cover the cost of leave required to be paid for these periods of time during which employees are unable to work.
IRS Guidance. The following are highlights from the guidance:
- Eligible Employers. Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide EPSL and EFMLA. Eligible Employers may claim the tax credit for EPSL and EFMLA leave taken between April 1, 2020 and December 31, 2020.
- Amount of Credits. The amount of the credit available is limited by the amount of qualified sick leave wages paid to employees, qualified health plan expenses, and the employer’s share of Medicare taxes imposed on those wages.
- Reimbursement. Employers are required to claim the tax credits on their federal income tax returns. Employers that wish to receive advance payment from the federal government for these tax credits should retain an amount of their employment taxes equal to the amount of paid sick leave and family leave wages rather than depositing these amounts with the IRS. However, employers may not reduce their deposits of payroll taxes and request advance payments for anticipated tax credits. Where there are not sufficient payroll taxes to cover the cost of the EPSL and EFMLA leave tax credits, employers may file Form 7200 to request an advance payment from the IRS.
- Required Documentation. To support claims for tax credits, employers must be sure to retain all information provided by employees seeking to take either EPSL or EFMLA. When requesting leave, an employee should be asked to provide the following information:
- the employee’s name;
- the dates for which leave is requested;
- a statement of the COVID-19-related reason for which the employee is requesting leave, along with written support for such reason; and
- a statement that the employee is unable to work, including telework, due to such reason.
NOTE: “Written support” includes a note from the employee’s medical provider, or the medical provider of the person for whom they are caring.
Employers should request that employees who take sick leave because they have been instructed to self-quarantine provide a note from their medical provider. Employers should also request that employees who take paid sick leave to care for another who has been instructed to self-quarantine provide a note from the medical provider for such person.
For leave based on a quarantine order or self-quarantine advice, the employee should be asked to provide:
- the name of the governmental entity ordering quarantine;
o the name of the healthcare professional advising self-quarantine; and
- if the person subject to the quarantine is not the employee, that person’s name and relation to the employee.
For leave based on school closings or childcare provider’s unavailability, the employee should be asked to provide:
- the name and age of the child (or children) to be cared for;
o the name of the school that has closed or place of care that is unavailable; and
- a statement that no other person will be providing care for the child during the period of requested leave.
NOTE: Where the employee’s inability to work is due to a need to provide care for a child older than fourteen during daylight hours, the employee should be asked to provide an explanation of the special circumstances that exist requiring the employee to provide care.
The IRS Guidance is available at: https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs