Receive Tax Credits with Proper FFCRA Documentation
California Employers Association
In 2015, employers had months to prepare for California’s paid sick leave program. Oh, how times have changed. Now, employers are trying to figure out how to comply with two new emergency leave laws right away. The emergency paid sick leave (EPSL) and emergency family medical leave (EFLMLA), under the Families First Coronavirus Response Act (FFCRA) both went into effect on April 1, 2020.
FFCRA and the Payroll Tax Credit
One thing we know for sure is that employers who pay qualifying FFCRA sick or childcare leave to their employees will receive 100% reimbursement through payroll tax credits. Employers can retain an amount of the payroll taxes equal to the amount of qualifying sick and childcare leave that they paid out, rather than depositing those taxes with the IRS.
- Eligible employers can either claim the credits on their federal employment tax returns (e.g., Form 941, Employer’s Quarterly Federal Tax Return)
- Or, if there are not sufficient payroll taxes to cover the cost of qualified paid leave, employers submit a Form 7200, Advance Payment of Employer Credits Due to COVID-19 (new)
Proof and Documentation
A frequent question received by CEA this week is, “What type of documentation must an employer obtain to substantiate both the need for leave and, more importantly, the eligibility for the tax credit?”
Thankfully, the IRS has answered this question in a series of FAQs, and the Department of Labor has issued new regulations.
Taken from the IRS FAQs, combined with additional information from the regulations:
44. What information should an Eligible Employer receive from an employee and maintain to substantiate eligibility for the sick leave or family leave credits?
An Eligible Employer will substantiate eligibility for the sick leave or family leave credits if the employer receives a signed statement from the employee in which the employee provides:
- The employee’s name
- The date or dates for which leave is requested
- A statement of the COVID-19 related reason the employee is requesting leave
- A statement that the employee is unable to work, including by means of telework, for such reason
Additional documentation can be required depending on the reason for the leave.
In the case of a leave request based on a quarantine order or self-quarantine advice, the statement from the employee should include the name of the governmental entity ordering quarantine or the name of the health care professional advising self-quarantine, and, if the person subject to quarantine or advised to self-quarantine is not the employee, that person’s name and relation to the employee.
In the case of a leave request based on a school closing or childcare provider unavailability, the statement from the employee should include:
- The name and age of the child (or children) to be cared for
- The name of the school that has closed or place of care that is unavailable
- A statement that no other person will be providing care for the child during the period for which the employee is receiving family medical leave
- With respect to the employee’s inability to work or telework because of a need to provide care for a child older than fourteen during daylight hours, a statement that special circumstances exist requiring the employee to provide care
45. What additional records should an Eligible Employer maintain to substantiate eligibility for the sick leave or family leave credit?
An Eligible Employer will substantiate eligibility for the sick leave or family leave credits if, in addition to the information set forth in FAQ 44 (“What information should an Eligible Employer receive from an employee and maintain to substantiate eligibility for the sick leave or family leave credits?”), the employer creates and maintains records that include the following information:
- 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 leave and qualified family leave.
- Documentation to show how the employer determined the amount of qualified health plan expenses that the employer allocated to wages. See FAQ 31 (“Determining the Amount of Allocable Qualified Health Plan Expenses”) for methods to compute this allocation.
- 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).
46. How long should an Eligible Employer maintain records to substantiate eligibility for the sick leave or family leave credit?
An Eligible Employer should keep all records of employment taxes for at least 4 years after the date the tax becomes due or is paid, whichever comes later. These should be available for IRS review.