IRS issues guidance on required documentation for FFCRA tax credits
The Internal Revenue Service (IRS) issued guidance for covered employers under the Families First Coronavirus Response Act (FFCRA) on how to claim federal tax credits for paid sick and family leave wages, including details on the documentation the IRS will require from employers to prove eligibility for the credits. As we previously reported, the FFCRA requires covered employers (those with fewer than 500 employees) to provide eligible employees with paid sick or family leave between April 1, 2020, and December 31, 2020, for certain COVID-19-related reasons. Under the FFCRA, a covered employer can generally claim fully refundable federal tax credits equal to the amount it pays employees for FFCRA-qualifying leave (up to set dollar limits), plus the employer portions of Medicare taxes and certain types of group health plan expenses allocated to the leave. The new guidance from the IRS details the specific steps employers must take to claim the credits.
The IRS guidance answers questions many employers have had about the FFCRA tax credits. Among other things, the guidance instructs employers on how to offset qualifying leave wages against quarterly tax deposits, including the timing and filing of specific forms. The guidance explains how to apply for an advance from the IRS if you don’t have enough in withheld tax funds to cover the FFCRA-qualifying wages. The guidance also explains how to calculate the amount of group health plan premiums that qualify for the credits. Notably, the guidance explicitly states that tax-exempt employers (such as non-profits) may also qualify for the credits to the extent they’re required to provide FFCRA-qualifying leave.
As the employer, you must create and retain certain internal documents to prove eligibility for the credits. You should retain all documentation related to the FFCRA tax credits for at least four years after the date the tax becomes due or is paid, whichever is later. In the event of an audit, you may have to show each of the following:
- Documentation to show how you determined the amount of FFCRA-qualifying wages that were eligible for the credits, including records of work, telework, and FFCRA-qualifying leave;
- Documentation to show how you determined the amount of qualifying health plan expenses that you allocated to wages;
- Copies of completed form(s) submitted to the IRS to claim an advance on the tax credits; and
- Copies of completed form(s) that you submitted to the IRS for the company’s quarterly tax return(s).
You must also obtain certain documentation from employees to prove eligibility for the credits (and retain it for at least four years, as with the internal documentation noted above). You’ll only be eligible for tax credits for an employee’s FFCRA-qualifying leave if the employee has submitted a written request for FFCRA-qualifying leave that details the following:
- The employee’s name;
- The dates the employee is requesting leave;
- 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 (or telework) for such reason.
For the third item listed above (a statement of the COVID-19-related reason the employee is requesting leave), workers must include additional information in their written request, depending on the reason for taking leave. If the leave is based on a quarantine order or self-quarantine advice, the employee’s statement “should include the name of the governmental entity ordering quarantine or the name of the health care professional advising self-quarantine.” If the employee is taking FFCRA-qualifying leave to care for someone else who is subject to a quarantine order or self-quarantine advice (not including school closures), the employee’s written request should include “that person’s name and relation to the employee.”
The IRS requires additional details if an employee’s written request for FFCRA-qualifying leave is for school closures. For leave based on a child’s school closing or childcare provider unavailability, the employee’s written request should include “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 receiving family medical leave….” According to the IRS, an employee may only take school closure leave to care for their child if no other “suitable person is available to care for” the child. Also, if the child for whom an employee is taking school closure leave is older than fourteen and the leave would be taken during daylight hours, the employee must include in the written request “a statement that special circumstances exist requiring the employee to provide care.” In other words, the IRS guidance implies that children older than 14 should be able to fend for themselves during daylight hours, unless employees explain that “special circumstances” exist.
Tips: If you’re covered under the FFCRA and want information about how to claim the tax credits, read the IRS guidance thoroughly. If you still have questions after reading the guidance, please consult with your tax adviser. Vigilant is providing the tax information above to keep employers informed of new developments about the government response to COVID-19, but Vigilant Law Group employment attorneys aren’t tax attorneys and cannot offer specific legal advice about tax law. Vigilant has a new Model Form, the Families First Coronavirus Response Act Leave Request Form, which you can give employees to use as a written request for FFCRA-qualifying leave. Vigilant has also updated its Model Policy, the Families First Coronavirus Response Act Policy, to reflect the new employee documentation requirements as outlined in the IRS guidance. (We first published the model policy on 3/31/20; the current version as of today is dated 4/3/20.) If you have questions about the model form or model policy, contact your Vigilant Law Group employment attorney.