IRS Releases Guidance On Documentation Needed To Obtain Tax Credits Under The FFCRA


April 3, 2020

This week, the Internal Revenue Service (“IRS”) released some much-anticipated guidance on how covered employers must go about documenting employees’ entitlement to emergency paid leave under the Families First Coronavirus Response Act (“FFCRA”). Such documentation is required to substantiate the employee’s need for leave and is critical in order for the employer to obtain the available tax credits. Providing emergency paid leave to an employee who is not entitled to such leave will prevent the employer from recouping the payments as tax credits. The new guidance from the IRS is available here.

Because the IRS is requiring employers to obtain specific documentation (outlined below), we are recommending that employers provide a requesting employee with a simple form to fill out with necessary information. Please contact a member of the McGrath North Labor and Employment group for assistance in drafting such form(s).

As was previously alluded to by the Department of Labor (“DOL”), the employer must require the employee to submit a written request for emergency paid leave under the FFCRA. This written request must include the following information:

  • The employee’s name;
  • The date(s) for which the employee is requesting leave;
  • The reason related to COVID-19 that the employee is requesting leave and a statement providing written support for such reason; and
  • A statement by the employee that they are unable to work—or telework—due to the COVID-19 related reason.

Employee Statement for Emergency Paid Sick Leave

If the employee is requesting emergency paid sick leave—for any reason other than childcare—the written statement from the employee must include:

  • The name of the governmental entity ordering quarantine or the name of the health care professional advising self-quarantine; and/or
  • If the person subject to quarantine or self-quarantine is not the employee, that person’s name and relation to the employee.

Employee Statement for Emergency Paid Family Leave

If the employee is requesting emergency paid family leave—or sick leave due to childcare—the written statement from the employee must include:

  • The name and age of the child(ren) to be cared for;
  • The name of the school that has closed or the 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 requesting paid leave; and
  • If the child is older than 14, a statement explaining the special circumstances that exist that render the employee unable to work or telework because they are required to provide care for the child during daylight hours.

This new guidance highlights two important caveats with respect to an employee’s entitlement to emergency paid family leave:

  1. The employee is only entitled to paid leave due to childcare if that employee alone is providing childcare. Stated otherwise, if the other parent or another person is present to care for the child, the employee is not entitled to paid leave.
  2. If the employee’s child is over 14 years old, the employee is not entitled to paid leave due to childcare unless the employee can explain “special circumstances” that necessitate the employee to care for the child.

Summary of How the Tax Credits Work

As we know, covered employers are entitled to receive a tax credit in the full amount of the qualified paid leave paid to employees under the FFCRA, plus allocable qualified health plan expenses and the employer’s share of Medicare tax paid for leave between April 1, 2020 and December 31, 2020.

Therefore, covered employers are able to retain an amount of all federal employment taxes that is equal to the amount of the qualified leave wages paid, plus the allocable qualified health plan expenses and the amount of the employer’s share of Medicare tax imposed on those wages. This amount of federal employment taxes may be retained by the employer rather than deposited with the IRS. Federal employment taxes that may be retained include federal income taxes, the employee’s share of social security and Medicare, and the employer’s share of social security and Medicare with respect to all employees.

If the amount of federal employment taxes that are retained by the employer are not sufficient to cover the 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 employer can file a request for advance payment from the IRS by submitting a Form 7200. This form is available here.

Additional Documentation to Obtain Tax Credits

In addition, the IRS makes clear that employers will claim their tax credits by reporting their total qualified leave wages (and allocable qualified health plan expenses and the employer’s share of Medicare tax paid on those wages) for each quarter on their federal employment tax return (IRS Form 941).

Therefore, employers must also retain the following documents in order to substantiate eligibility for the tax credits:

  • Documentation to show how the employer determined the amount of qualified 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;
  • Copies of completed Forms 941 (Employer’s Quarterly Federal Tax Return); and
  • Forms 7200 (Advance of Employer Credits Due to COVID-19), if applicable.

If you have any questions regarding this alert, or on implementing the new IRS guidance, please contact the Tax and Labor, Employment and Benefits members of our COVID-19 Response Team indentified below.

Tax:

Jon Grob
jgrob@mcgrathnorth.com
(402) 633-9560

Courtney Foltz
cfoltz@mcgrathnorth.com
(402) 633-9572

Labor, Employment and Benefits:

Aaron Clark
aclark@mcgrathnorth.com
(402) 633-9580

Abbey Moland
amoland@mcgrathnorth.com
(402) 633-9566

Caroline Nelsen
cnelsen@mcgrathnorth.com
(402) 633-9575

Contact information for the complete McGrath North’s COVID-19 Response Team can be found here.

For information regarding additional business-related concerns centered around COVID-19, please visit our COVID-19 Resource Guide here.

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