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IRS Guidance for Employers on FFCRA Tax Credits

4/10/20 – Deirdre Bird & Natalie Thompson

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Under the Families First Coronavirus Relief Act (FFCRA), eligible employers are entitled to refundable tax credits for the full amount of wages that qualify under Paid Emergency Sick Leave (ESL) or Paid Emergency Family Medical Leave (EFMLA).  In addition to credit for paid wages for the qualified leave, the credit is increased by qualified health plan expenses and the employer’s share of Medicare tax. Eligible employers seeking federal tax credits must retain records and documentation related to and supporting each employee’s leave.

To substantiate the FFCRA leave, employees requesting leave should provide a written request in which the employee provides:

  • His/her name;
  • The date or dates for which leave is requested;
  • A statement that the employee is unable to work / telework because of the need; and
  • A statement of the COVID-19 related reason the employee is requesting leave and written support for the reason.
    • For a self-quarantine / quarantine, written support should include the name of the health care professional or government entity directing a self-quarantine or quarantine and the employee’s relationship to the person being quarantined.
    • For a school closing / unavailable child care provider, the written support should include the child’s name and age, the school / child care provider’s name, the school / child care provider’s message of closure / unavailability, representation that no other person will be providing care during the time requested, and the special circumstances requiring the care during daylight hours if the child is over 14 years of age.

In addition, the company will want to document approved leaves:

  • How the company determined the amount of qualified sick and family leave wages paid to eligible employees, including records of work / telework; and
  • How the company determined the amount of qualified health plan expenses. The qualified health plan expense allocation is made on a pro rata basis among covered employees, such as the average premium for all employees covered by the health plan, and pro rata on the time period of the leave;
  • Copies of any completed Forms 7200, Advance of Employer Credits Due To COVID-19, which the company submitted to the IRS;
  • Copies of the completed Forms 941, Employer’s Quarterly Federal Tax Return, which the company submitted to the IRS.

The company should keep these employment tax records for at least four years after the date the tax becomes due or is paid, whichever is later.

Eligible employers can claim the credits beginning April 1, 2020. To claim the credits, the company can adjust the federal tax deposits and then report it on the company’s quarterly 941. If the federal employment taxes yet to be deposited are not sufficient to cover the company’s cost of qualified leave wages, plus the allocable qualified health plan expenses and the amount of the employer’s share of Medicare tax imposed on those wages, the company can file a Form 7200 to request an advance payment from the IRS.

The IRS restricts FFCRA sick leave and / or family leave wage credits from the wages considered for the CARES Act employer credit or loan forgiveness. Qualified wages for the CARES Act employee retention credit do not include FFCRA ESL / EFMLA wages for which an employer received tax credits. And, if an employer receives tax credits for qualified FFCRA leave wages, those wages are not eligible as “payroll costs” for purposes of receiving loan forgiveness under section 1106 of the CARES Act.

For further guidance related to the FFCRA tax credit for employers, or other COVID-19 related updates, contact VonLehman’s specialized Human Resources Consulting Group via Deirdre Bird at dbird@vlcpa.com or 800.887.0437.

The information provided in this article is based on direction provided by the IRS at https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs