Employers should keep in mind that in order to obtain tax credits for leave under the FFCRA, they must obtain and retain certain supporting documentation. The credits available under FFCRA are not offered automatically. Failure to obtain and retain proper supporting documentation could result in the inability to obtain tax credits to cover the cost of paid sick leave (“PSL”) and paid expanded family and medical leave (“EFML”), as provided by the FFCRA. Accordingly, employers may wish to implement a system to ensure that they do not fail to collect the documentation, required to obtain leave-based tax credits.
1. Use a Standard Form
Employers may benefit from using a standard form that covers all the information needed from an employee seeking PSL or EFML. Using a form can assist an employer with obtaining all information needed from an employee and can avoid situations where it may be difficult, if not impossible, to later obtain such information. For example, if an employee took 12 weeks of EFML and subsequently quit his or her job, the employee might not be interested in responding to requests for additional information from an employer after termination of employment.
Generally, an employee is required to provide an employer documentation containing the following information prior to taking PSL or EFML:
• The employee’s name;
• The date(s) for which leave is requested;
• Qualifying reason for the leave; and
• Oral or written statement that the employee is unable to work, including by means of telework, because of the qualifying reason to take the leave.
Additionally, the IRS indicates that an employer should also receive a statement of the COVID-19 related reason the employee is requesting leave and written support 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 name of the governmental entity ordering quarantine or the name of the health care professional advising self-quarantine. If the person subject to quarantine or advised to self-quarantine is not the employee, the leave request should include that person’s name and relation to the employee.
In the case of a leave request based on a school closing or child care provider unavailability, the statement from the employee 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;
• 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
• If the child is older than 14 and the request for leave is during daylight hours, a statement that special circumstances exist requiring the employee to provide care.
2. Collect and Assemble Additional Information Needed to Receive Tax Credits
In addition to the information associated with documentation of an employee’s need for leave, the IRS indicates that an employer should create and maintain records that include the following information:
• Documentation to show how the employer determined the amount of qualified sick and family leave 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 any completed Forms 7200, Advance of Employer Credits Due To COVID-19, that the employer submitted to the IRS; and
• Copies of the completed Forms 941, Employer’s Quarterly Federal Tax Return, that the employer submitted to the IRS (or, for employers that use third party payers to meet their employment tax obligations, records of information provided to the third party payer regarding the employer’s entitlement to the credit claimed on Form 941).
All records associated with obtaining tax credits should be retained for 4 years. Employers should not ask for more information than required pursuant to the FFCRA and associated guidance.
3. Create a Tax Credit Checklist
In order to ensure that all information has been collected and retained, it may be helpful to construct and maintain a checklist with the file of each employee who has requested leave. Such a checklist should include the following information:
☐ Employee’s name.
☐ Date(s) of leave.
☐ A statement of the qualifying reason leave is requested.
☐ A statement that the employee is unable to work, including by means of telework, because of the qualifying reason to take leave.
☐ If leave is due to a quarantine order or advisement, then the name of the governmental entity or health care provider advising quarantine.
☐ If the leave is to care for another individual, the name of the other individual and the relation to the employee.
☐ If leave is to care for a child:
a. The name and age of the child;
b. The name of the school or place of care;
c. Representation of need;
d. If child is over 14 and leave is during daylight hours, a statement of special circumstances.
☐ Amount of leave determination.
☐ Amount of compensation for leave determination.
☐ Copies of Forms 7200, if any.
☐ Copies of completed Forms 941.
4. Claim Tax Credits
Employers may claim tax credits from wages paid to employees on leave due to PSL or EFML, for reasons related to COVID-19, for leave taken from April 1, 2020 to December 31, 2020. Employers may claim the credits on their employment tax returns or many benefit more quickly from the credits by reducing their federal employment tax deposits, related to wages paid for PSL or EFML. In other words, an employer may, in anticipation of claiming credits on the Form 941, retain the federal employment taxes that would otherwise be deposited with the IRS.
Carson LLP has created a sample form for use by your business that can be made available upon request to a Carson LLP attorney.