Employers are becoming familiar with the new Families First Coronavirus Response Act (FFCRA), which provides new COVID-19-related federal emergency paid sick leave and emergency family and medical leave. As employees start using the new leave, it’s important for employers to collect and maintain proper documentation, not only for their own records, but also to claim the new tax credits available to them.
The FFCRA provides fully refundable tax credits to cover the cost of the required leave. According to Internal Revenue Service (IRS) guidance, employers can begin taking advantage of the credits by withholding federal employment taxes equal to the amount of leave paid, rather than depositing them with the IRS. Employers will report this on their Form 941, Employer’s Quarterly Federal Tax Return.
If an employer does not have sufficient employment taxes set aside, employers may file a request for an accelerated payment from the IRS with Form 7200, Advance Payment of Employer Credits Due to COVID-19, which the IRS expects to process quickly.
The IRS requires certain documentation to claim the credits. First, employers will need to collect specific information when the employee gives notice of the need to take leave, including:
- Employee’s name;
- Dates for which leave is requested;
- Qualifying reason for leave; and
- Statement that the employee is unable to work or telework for that reason.
As previously mentioned, employees must also provide information specific to the qualifying reason for leave.
CalChamber’s free COVID-19-Related Paid Sick Leave or Family and Medical Leave (FFCRA) — Employee Notice includes all the above required information.
Second, in addition to the above information, the IRS requires employers maintain:
- 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 and family leave.
- Documentation to show how the employer determined the amount of qualified health plan expenses that the employer allocated to wages.
- Copies of any completed Forms 7200, Advance of Employer Credits Due To COVID-19, that the employer submitted to the IRS.
- 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).
CalChamber’s free COVID-19-Related Paid Sick Leave or Family and Medical Leave (FFCRA) Documentation Checklist — For Employer Use Only will help you keep track of the required documentation.
Employers should consult with legal counsel and carefully review the IRS FFCRA tax credit guidance and FAQs for detailed instructions on how to claim their tax credits.
Visit the CalChamber Coronavirus (COVID-19) webpage for more COVID-19-related federal, state and local resources, including CalChamber coverage.
Access additional COVID-19-related HRWatchdog blogs.