ALERT: IRS TAX REIMBURSEMENT GUIDANCE AND FFRCA REGULATIONS ISSUED
How to Claim Payroll Tax Credits Under the FFCRA – New IRS Guidance
The IRS has issued much awaited guidance on how employers can claim payroll tax credits for leave provided under the FFCRA. That guidance is available here.
Highlights of the tax credits include:
- Employers are entitled to a refundable tax credit equal to the amount of paid FFCRA sick leave and/or paid family and medical leave provided to eligible employees.
- The tax credit includes the employer’s share of Medicare tax applicable to the wages as well as the cost of maintaining health insurance coverage for the employee during the qualified leave period (i.e. qualified health plan expenses).
- The employer is not subject to the employer portion of social security tax imposed on those wages.
The credits cover 100 percent of up to 10 days of the qualified FFCRA leave wages and up to 10 weeks of the qualified family leave wages (including qualified health plan expenses associated with those wages) paid during the quarter, plus the amount of the employer’s share of Medicare taxes on those wages.
How to Claim the Tax Credit
- Employers must report the total qualified FFCRA leave wages (and any qualified health plan expenses and the employer’s share of Medicare tax on those leave wages) for each quarter on their federal employment tax return, usually Form 941, Employer’s Quarterly Federal Tax Return.
- Rather than depositing them with the IRS, employers simply retain the amount of the qualified leave wages paid, plus applicable health plan expenses and the amount of the employer’s share of Medicare tax on those wages.
Recordkeeping is Crucial for Claiming the FFCRA Credits!
Employers must retain records and documentation for each employee’s FFCRA leave in order to claim the credits, including the following:
- A notice to the employee that the FFCRA leave was granted
- The leave wages paid to the employee
- Any health plan expenses paid for the employee, and
- The employer’s share of Medicare tax on those leave wages
In addition, make sure to retain the Forms 941 and 7200 (Advance of Employer Credits Due To COVID-19) and any other IRS filings made in connection with requesting the credit.
Below is a checklist of the FFCRA eligibility documentation employers should obtain from their employees depending on the nature of the leave request.
Processing employee COVID-19 FFCRA leave requests
Obtain the employee’s written request for leave that includes:
- The employee’s name
- Date for which the leave is requested
- The COVID-19 related reason the employee is requesting leave and written support for that reason
- A statement that the employee is unable to work, including unable to perform remote work, for that reason.
Quarantine-related FFCRA leave requests
Obtain the name of the government entity ordering quarantine/isolation or the name of the healthcare provider recommending quarantine (or if caring for a quarantined individual, that person’s name and relationship to the employee).
School closure/childcare unavailability-related FFCRA leave requests
- Name(s) and age(s) of the child being cared for;
- Name of the school/place of care that is unavailable; and
- A certified representation that no one else will be providing care for that child during the paid leave period.
- If the employee is unable to work (including work remotely) while caring for a child older than 14 during daytime hours, a statement that special circumstances exist for the employee to provide care.
- Reminder – Employers must still withhold the employee’s share of social security and Medicare taxes on the paid leave wages.
- Employers can only claim tax credits for qualified FFCRA leave wages for leave taken from April 1, 2020 to December 31, 2020
- No tax credit reimbursement is available for leave wages paid out before the Act’s implementation.
FFCRA REGULATIONS ARE HERE AND FAIRLY CLEAR
If you’ve been following DDWK’s COVID-19 Updates, you know that we have been waiting for regulations issued by the Department of Labor (“DOL”) to clarify certain FFCRA-related compliance and implementation issues. The regulations are here and they are fairly clear. The regulations confirm our FFCRA guidance and recommendations, which can be found here.
The following is meant to be a summary of clarifications now provided by the regulations as well as outstanding issues that will likely require additional regulations from the DOL.
FFCRA Exemption Criteria for Small Businesses
If a small employer (less than 50 employees) decides to deny paid FFCRA leave to an employee whose child’s school or place of care is closed, or whose childcare provider is unavailable, the small employer must document the facts and circumstances that meet the exemption criteria to justify such denial (i.e. compliance would jeopardize the viability of the business as a going concern). See our Update No. 8 for detailed information regarding the exemption criteria.
What does this mean? The FFCRA exemption for small businesses is a self-claimed exemption, meaning it does not require any application. Eligible employers should retain documents and records that justify the denial of FFCRA leave, and should not send such material or documentation to the DOL.
California’s Stay-at-Home order qualifies as an “isolation” order under the FFCRA
Although the regulations clarify that a state or local stay-at-home order qualifies as an “isolation” order for purposes of the FFCRA’s paid sick leave entitlements, employers should not panic. A stay-at-home order does not mean that all California employees must immediately be provided with FFCRA sick leave. Rather, as our previous legal guidance states, if workers can perform remote work under the stay-at-home order, employers should provide such work whenever possible. If remote work is possible (even on an intermittent basis), the employee’s eligibility for FFCRA leave is limited. The Act encourages flexibility, including granting remote work to employees, if possible. Likewise, if your business is temporarily closed due to the COVID-19 pandemic or has furloughed workers, your employees are not eligible for FFCRA leave because of the closure and/or furlough.
Further Regulations Needed
At present, it remains unclear whether an employer can require an employee to use pre-existing paid time off (PTO or vacation) during the FFCRA expanded family leave. However, it is clear that employers and employees may agree to such an arrangement.
Still feeling overwhelmed and need help? We understand. This is a confusing area of the law for employers to navigate, so please contact us if you need assistance with employee eligibility determinations and other FFCRA implementation issues.