IRS Updates FAQs on Tax Credits for Paid Leave
The IRS recently released two new sets of frequently asked questions and answers (FAQs) on the tax credits available for paid sick and family leave under the American Rescue Plan Act of 2021 (ARP).
The ARP, which was signed into law last March, amended and extended the tax credits available to eligible employers that provide paid sick and family leave under the Families First Coronavirus Response Act of 2020, as well as provided equivalent credits to self-employed individuals. The new FAQs address Form W-2c and self-employed individuals.
One of the new questions answers whether an eligible employer that claims credits for qualified leave wages paid after Dec. 31, 2021, for leave taken by an employee in 2021 needs to furnish to the employee a Form W-2c to correct the amount of sick and family leave wages reported on the employee’s 2021 Form W-2. If the employer reports sick or family leave wages paid after Dec. 31, 2021, for leave taken by an employee after March 31, 2021, and before Oct. 1, 2021, and claims a credit for those wages, the employer must send the employee a Form W-2c that includes the qualified leave wages paid after Dec. 31, 2021, in Box 14 or provide the employee a corrected statement. The IRS says the employer should not file a Form W-2c with the Social Security Administration only to correct the amount in Box 14.
Another question addresses whether a self-employed individual who claims the self-employed equivalent leave credit and receives a Form W-2c (or a corrected statement) from an employer with corrected qualified sick or family leave wages for the period starting April 1, 2021, and ending Sept. 30, 2021, should file an amended return. The IRS states that the individual must recalculate the credit on the 2021 Form 7202, and if the amount of the qualified leave equivalent credit has changed from the amount claimed on the individual’s 2021 Form 1040, the individual must file a Form 1040-X with the corrected amounts.