(Co-written by Christina Denbow)
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, visit McLane Middleton’s Coronavirus Resource Center at www.mclane.com/Coronavirus-Resource-Center.
The FFRCA provides that employers who are subject to 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 the employees for these periods of time during which they are unable to work. Certain self-employed individuals in similar circumstances are entitled to similar credits.
To request the tax credit for paid leave payments paid out pursuant to FFCRA, an employer will need to have documentation to substantiate the payments. An employee must provide his or her employer documentation in support of sick leave 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 an employee to provide such additional material as 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 that claim 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 to substantiate the claim for the credits, and retain:
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 his or her request for paid sick leave or expanded family and medical leave, the employer is required to document and 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?” – www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs
COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs – www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs