The IRS has issued new guidance explaining the refundable tax credits under The Families First Coronavirus Response Act (the "FFCRA").
The FFCRA was signed by President Trump on March 18, 2020. It provides small and midsize employers refundable tax credits that reimburse them, dollar-for-dollar, for the cost of providing paid sick and family leave wages to their employees for leave related to COVID-19.
Background: General FFCRA Paid Leave Provisions
The FFCRA provides for businesses with fewer than 500 employees.
- The funds provide employees with paid sick and family and medical leave for reasons related to COVID-19, either for the employee's own health needs or to care for family members.
- Workers may receive up to 80 hours of paid sick leave for their own health needs or to care for others and up to an additional ten weeks of paid family leave to care for a child whose school or place of care is closed or child care provider is closed or unavailable due to COVID-19 precautions.
The FFCRA covers the costs of this paid leave by providing small businesses with refundable tax credits. Certain self-employed individuals in similar circumstances are entitled to similar credits.
When can employers start claiming the credits?
Beginning on April 1, 2020, eligible employers may claim tax credits for qualified leave wages paid to employees on leave due to paid sick leave or expanded family and medical leave for reasons related to COVID-19 for leave taken. This ends December 31, 2020.
Eligible employers can claim the credits on their federal employment tax returns (e.g., Form 941, Employer's Quarterly Federal Tax Return). They can also benefit more quickly from the credits by reducing their federal employment tax deposits. If there are insufficient federal employment taxes to cover the amount of the credits, an Eligible Employer may request an advance payment of the credits from the IRS by submitting a Form 7200, Advance Payment of Employer Credits Due to COVID-19. The IRS expects to begin processing these requests during April 2020.
What Documentation must an Eligible Employer Retain?
Eligible employers claiming the credits for qualified leave wages, must retain records and documentation related to and supporting each employee's leave to substantiate the claim for the credits, and retain the Forms 941, Employer's Quarterly Federal Tax Return, and 7200, Advance of Employer Credits Due To COVID-19, and any other applicable filings made to the IRS requesting the credit.
An Eligible Employer will substantiate eligibility for the sick leave or family leave credits if the employer receives a written request for such leave from the employee in which the employee provides:
- 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
- statement that the employee is unable to work, including by means of telework, for such reason.
In the case of a leave request based on a quarantine order or self-quarantine advice, the statement from the employee should include the following:
- Name of the governmental entity ordering quarantine or the name of the health care 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.
In the case of a leave request based on a school closing or childcare provider unavailability, the statement from the employee should include the following:
- Name and age of the child (or children) to be cared for;
- Name of the school that has closed or place of care that is unavailable;
- A representation that no other person will be providing care for the child during the period for which the employee is receiving family medical leave; and
- With respect to the employee's inability to work or telework because of a need to provide care for a child older than fourteen during daylight hours, a statement that special circumstances exist requiring the employee to provide care.