The Families First Coronavirus Response Act (FFCRA) requires small and midsize businesses to provide paid sick leave to their employees through two of its provisions: (1) the Emergency Paid Sick Leave Act (EPSLA); and (2) the Emergency Family and Medical Leave Expansion Act (Expanded FMLA). (For more information and model sick leave policies, please visit McLane Middleton’s Coronavirus Resource Center here). Under FFRCA, employers subject to the EPSLA and Expanded FMLA paid leave requirements are entitled to fully refundable tax credits to cover the cost of the leave required to be paid to employees for those periods when they are unable to work. Certain self-employed individuals in similar circumstances are entitled to similar credits.
To request the tax credits for paid leave payments paid out under FFCRA, an employer will need to have documentation to substantiate the payments. Employees must provide employers with documents supporting sick, or expanded family and medical leave. The documentation should include a signed statement containing the following information:
- Employee name;
- Requested leave date(s);
- A written statement supporting the COVID-19 related reason for which the employee is requesting leave;
- A statement that the employee is unable to work (including telework) due to such reason, and either:
- In the case of leave based on a quarantine order or self-quarantine advice of a health care professional, the name of the governmental entity or health care professional should be provided. If the person quarantined is not the employee, the employee must provide the name of such person and their relation to the employee; or
- In the case of leave based on a school closure or unavailability of a child care provider, the name(s) and age(s) of the child(ren) to be cared for, the name of the school or provider, and a representation that no other person will be providing care for the child(ren) during the period of requested leave should be provided. If the employee is required to care for a child older than 14 during daylight hours, the employee must also provide a statement that special circumstances exist requiring the employee to provide care.
The employer may also request that an employee provide additional material needed for the employer to support a request for tax credits. The employer is not required to provide leave if materials sufficient to support the applicable tax credit have not been provided.
In addition to the above, according to the IRS, Eligible Employers claiming the credits for qualified leave wages (and allocable qualified health plan expenses and the Eligible Employer’s share of Medicare taxes) must retain records and documentation related to and supporting each employee’s leave in order to substantiate the claim for the credits. This includes:
- Documentation showing how the business determined the amount of wages to be paid to employees eligible for paid leave, including (i) records of the employee’s regular work hours (including telework); (ii) the employee’s regular wages ((i) and (ii) are used to compute the amount and pay rate of available leave); and (iii) records showing the amount of leave actually taken by the employee;
- Documentation showing 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,” the employer submitted to the IRS; and
- Copies of completed Forms 941, “Employer’s Quarterly Federal Tax Return,” that the employer submitted to the IRS, (or copies of documentation the employer provided to a third party when the employer uses a third party payer to meet their employment tax obligations.”
The company should keep these records for at least four years regardless of whether leave was granted or denied. If an employee provided oral statements to support a request for paid sick leave or expanded family and medical leave, the employer is also required to make a record of the oral statements and to retain such information for four years.
For more information, employers may visit the following resource pages provided by the IRS:
- “How Should an Employer Substantiate Eligibility for Tax Credits for Qualified Leave Wages?”.
- COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs – https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs