As previously reported in our Client Alert of March 30,
Federal CARES Stimulus Relief Package Forgivable Loan Program & Business Tax Relief
, the Families First Coronavirus Response Act (FFCRA) requires employers with fewer than 500 employees provide emergency paid sick leave and emergency paid FMLA leave for COVID-19 related reasons. Employers are eligible to recover the cost of such paid leave by claiming refundable tax credits. Specifically, employers will be able to retain an amount of all federal employment taxes equal to the amount of qualified leave wages paid, plus the allocable qualified health plan expenses and the amount of the employer’s share of Medicare tax imposed on those wages.
An employer wishing to claim the tax credits must be able to substantiate its claim with documentation and records supporting the leave.
Employee Documentation
Prior to the start of an employee’s paid leave under the FFCRA, employers should request a signed statement from the employee including the following information:
- The employee’s name;
- The date(s) for which leave is requested;
- The COVID-19 qualifying reason for leave; and
- A statement representing that the employee is unable to work or telework because of a COVID-19 qualifying reason.
The statement should include additional information, depending on the specific COVID-19 reason for which the employee is taking leave. Specifically:
- If taking leave because of a quarantine or isolation order, the statement must include the name of the government entity that issued the quarantine or isolation order. If the person subject to the quarantine or isolation order is not the employee, the statement must include that individual’s name and relation to the employee.
- If taking leave because the employee was advised to self-quarantine, the statement must include the name of the health care provider who advised self-quarantining. If the person advised to self-quarantine is not the employee, the statement must include that individual’s name and relation to the employee.
- If taking leave to care for a child who’s school is closed or child care provider is unavailable because of COVID-19, the statement must include: (a) the name of the child being cared for; (b) the name of the school, place of care or child care provider that closed or became unavailable; and (c) a statement representing that no other suitable person is available to care for the child during the period of requested leave. If the child is older than fourteen years old, the employee must identify “special circumstances” that require the employee to provide care to such child.
Employer Records
In addition to retaining the employee documentation described above, employers should keep the following additional records to substantiate their claim for tax credits:
- Documentation to show how the employer determined the amount of emergency paid sick leave and/or emergency FMLA leave wages paid to employees that are eligible for the credit, including records of work, telework and qualified emergency sick leave and qualified emergency FMLA 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 were submitted to the IRS; and
- Copies of the completed Forms 941, Employer’s Quarterly Federal Tax Returns, 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).
Employers should maintain all records for at least four years after the date the taxes become due or are paid. The IRS may request to review such documents.
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EGS has developed a form employers can use to gather and maintain the required information. If you would like a copy of the form, have questions or would like additional information, please contact EGS’s Employment Law Practice Group Leader, Amanda M. Fugazy at
[email protected]
or the primary EGS attorney with whom you work.
