On March 31, 2020, the IRS published new guidance regarding the Families First Coronavirus Response Act (“FFCRA”) and provided updated information regarding eligible employers’ obligations under the Act. Among other things, the IRS addressed what employers need to do to obtain tax credits under the Act and provided additional information regarding the documentation needed to support a qualifying leave request. Notably, the IRS guidance now requires employees taking leave to care for a child older than 14 during daylight hours to provide a statement that “special circumstances” exist requiring the employee to provide care.
To obtain the tax credit, employers can claim the credits on their federal employment tax returns (e.g., Form 941, Employer’s Quarterly Federal Tax Return), but can benefit sooner from the credits by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit. The federal employment taxes that are available for retention by Eligible Employers include federal income taxes withheld from employees, the employees’ share of social security and Medicare taxes, and the employer’s share of social security and Medicare taxes with respect to all employees.
If there are insufficient federal employment taxes to cover the amount of the credits, an employer may request an advance payment of the credits from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19, which requests the IRS expects to begin processing this month (April 2020).
The tax credit covers 100 percent of the paid sick leave and expanded family and medical leave wages that an employer pays to an eligible employee, subject to the applicable per employee caps based on the kind of leave taken and the qualifying reason for the paid leave (i.e., up to $511 per day/$5,110 in aggregate, where paid leave is taken due to the employee’s own qualifying health reasons, and up to $200 per day for all other qualifying reasons). These tax credits are increased by the qualified health plan expenses allocable to, and the Eligible Employer’s share of Medicare tax on, those qualified leave wages.
Employers claiming tax credits must retain records and documentation supporting each employee’s leave to substantiate the claim for the credits.
To substantiate the claim, an employer must obtain the following documentation (usually in the form of a written request for leave submitted by the employee):
- The employee’s name;
- The date(s) for which leave is requested;
- A statement of the COVID-19 related reason the employee is requesting leave; and
- A statement that the employee is unable to work or telework during the leave period.
- If the employee is taking leave pursuant to a quarantine order, the employee should include the name of the government entity or health care professional that is ordering or recommending the quarantine.
Additionally, for leave taken to care for a child, the employee must provide:
- The name and age of the child or children needing care;
- The name of the school or place of care;
- A representation that no other person will be caring for the child; and
- If the child is older than 14, a statement that “special circumstances” exist requiring the employee to provide care.
Further, employers must keep documentation to show how the employer determined the amount of qualified sick and family and medical leave wages paid to employees, including “records of work, telework, and qualified sick leave and qualified family leave.”
Employers seeking tax credits under the FFCRA should keep all records of employment taxes for at least four years after the date the tax becomes due or is paid, whichever comes later.
While employers may claim a credit for both FFCRA leave and CARES Act wages, they may not claim both credits for the same wage payments. Accordingly, employers cannot double-dip to cover the same wage payments—If an Eligible Employer receives tax credits for qualified leave wages, those wages are not eligible as “payroll costs” for purposes of receiving loan forgiveness under section 1106 of the CARES Act.