UPDATE: IRS Updates FAQs on Paid Sick and Family Leave Credits
The IRS recently posted updated FAQs about recent legislation that extended and amended tax relief to certain small- and mid-sized employers under the Families First Coronavirus Response Act (FFCRA).
The updates cover how the COVID-related Tax Relief Act of 2020, enacted Dec. 27, 2020, extends the availability of the tax credits created by the FFCRA to eligible employers for paid sick and family leave provided through March 31, 2021, as well as other amendments to the credits. The paid sick and family leave credits previously were available only until the end of 2020.
The paid sick leave credit is designed to allow qualified businesses – those with fewer than 500 employees and who pay “qualified sick leave wages” – to get a credit for wages or compensation paid to an employee who is unable to work (including telework) because of coronavirus quarantine or self-quarantine or has coronavirus symptoms and is seeking a medical diagnosis. Eligible employers may claim credit for paid sick leave provided to an employee for up to two weeks (up to 80 hours) at the employee's regular rate of pay up to $511 per day and $5,110 in total.
In addition, an eligible employer can receive the paid sick leave credit for employees who are unable to work due to caring for someone with coronavirus or caring for a child because the child's school or place of care is closed, or the paid childcare provider is unavailable due to the coronavirus. Eligible employers may claim the credit for paid sick leave provided to an employee for up to two weeks (up to 80 hours) at two thirds the employee's regular rate of pay, or up to $200 per day and $2,000 in total.
Employers are also entitled to a paid family leave credit for paid family leave provided to an employee equal to two thirds of the employee's regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the family leave credit.
Eligible employers are entitled to immediately receive a credit in the full amount of the paid sick leave and family leave plus related health plan expenses and the employer's share of Medicare tax on the leave provided through March 31, 2021. The refundable credit is applied against certain employment taxes on wages paid to all employees.
Eligible employers may claim the credits on their federal employment tax returns (e.g., Form 941, Employer's Quarterly Federal Tax Return), but they can 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.
View the updated FAQs at the IRS website.
Feb. 8, 2021 Update:
The IRS recently announced that a new form is available for eligible self-employed individuals to claim sick and family leave tax credits under the Families First Coronavirus Response Act (FFCRA).
Eligible self-employed individuals will determine their qualified sick and family leave equivalent tax credits with the new IRS Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals. They’ll claim the tax credits on their 2020 Form 1040 for leave taken between April 1, 2020 and Dec. 31, 2020 and on their 2021 Form 1040 for leave taken between Jan. 1, 2021 and March 31, 2021. IRS.gov has instructions to help calculate the qualified sick leave equivalent amount and qualified family leave equivalent amount. Certain restrictions apply.
Eligible self-employed individuals conduct a trade or business that qualifies as self-employment income and be eligible to receive qualified sick or family leave wages under the Emergency Paid Sick Leave Act as if the taxpayer was an employee. Taxpayers must maintain appropriate documentation establishing their eligibility for the credits as an eligible self-employed individual.
For more information, visit TSCPA’s COVID-19 resources page.