Getting Immediate Employer Tax Credit for FFCRA Sick Leave & EFMLA: IRS Releases Documentation Requirements and Expedited Process
Labor & Employment Alert 04/01/20 Christopher L. Nickels, Tyler Roth
The Internal Revenue Service (IRS) has released guidance for employers with under 500 employees that explains how to take the tax credit for paid sick leave and expanded FMLA under the Families First Coronavirus Response Act (FFCRA). The IRS’ guidance includes helpful FAQs as well as the applicable forms, instructions, and procedures that employers must follow to claim tax credits available under the FFCRA.
Receiving Tax Credit Relief for FFCRA Sick Leave and Expanded FMLA
Eligible employers may claim the tax credit for qualified paid sick leave and expanded FMLA taken between April 1, 2020, and December 31, 2020. Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, which is available here together with its instructions. Employers will claim the credits on their federal employment tax returns (e.g., Form 941, Employer's Quarterly Federal Tax Return), but they can benefit more quickly from the credits by reducing their federal employment tax deposits.
The amount of the credit available is limited by the amount of qualified sick leave wages paid to employees, qualified health plan expenses, and the employer’s share of Medicare taxes imposed on those wages. Click here for more information regarding the tax credits for qualified health plan expenses that are available under the FFCRA.
Employers who wish to receive advance payment from the federal government for these tax credits should retain an amount of their employment taxes equal to the amount of paid sick and family leave wages (plus certain related health plan expenses and the employer’s share of the Medicare taxes on the qualified leave wages) rather than depositing these amounts with the IRS. Employers may not reduce their deposits and request advance credit payments for the same expected credit.
If there are not sufficient employment taxes to cover the cost of qualified sick and family leave wages (plus the qualified health expenses and the employer share of Medicare tax on the qualified leave wages), employers can file Form 7200 to request an advance payment from the IRS.
Example 1: If an employer is entitled to a credit of $5,000 for qualified sick leave wages (plus certain related health plan expenses and the employer’s share of Medicare taxes on the qualified leave wages) and is otherwise required to deposit $8,000 in employment taxes, the employer could reduce its federal employment tax deposits by $5,000. The employer would only be required to deposit the remaining $3,000 on its next regular deposit date.
Example 2: If an employer is entitled to an employee retention credit of $10,000 and was required to deposit $8,000 in employment taxes, the employer could retain the entire $8,000 of taxes as a portion of the refundable tax credit it is entitled to and file a request for an advance payment for the remaining $2,000 using Form 7200.
Retain Documentation to Support the Tax Credit
In our March 30 alert, Quarles & Brady provided model employee procedures and a model employee leave election form for FFCRA leave requests. We also noted that the Department of Labor had withdrawn their prior guidance on required documentation and deferred to whatever documentation the IRS requires for the tax credit, which is now becoming clearer. The information employers receive from employees seeking to take leave should be retained to support the employer’s claim for a tax credit. Specifically, when seeking FFCRA leave, an employee should be required to provide:
- 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 and written support for such reason; and
- A statement that the employee is unable to work, including by means of telework, for such reason.
A fair reading of “written support” would include a note from the employee’s medical provider, or the medical provider of the person for whom they are caring. Thus, employers may ask employees who take sick leave because they have been instructed to self-quarantine to provide a note from their medical provider. As to employees taking paid sick leave to care for another who has been instructed to self-quarantine, employers may request a note from the medical provider of the person being cared for.
For leave based on a quarantine order or self-quarantine advice, the employee should be asked to provide the name of the governmental entity ordering quarantine, the name of the healthcare 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.
For leave based on a school closing or childcare provider's unavailability, the employee should be asked to provide: 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; and a representation that no other person will be providing care for the child during the period for which the employee is on leave. If the employee’s inability to work or telework is because of a need to provide care for a child older than fourteen during daylight hours, then the employee should provide a statement explaining the special circumstances that exist requiring the employee to provide care.
We have updated the model employee leave election form to be consistent with the latest IRS guidance. Regardless of the forms or mechanism that employers use to obtain information from employees seeking leave, employers should be sure to obtain the information identified by the IRS and included within this alert to support their claims for the tax credit.
Quarles & Brady will continue to monitor and report relevant updates and guidance on the FFCRA. If you have any questions related to the FFCRA or the IRS’ latest guidance, please contact your local Quarles & Brady attorney, or: