The Families First Coronavirus Response Act (“FFCRA”) mandates employers of fewer than 500 employees provide two types of paid leave and includes two employer social security tax credits equal to the amount of paid leave that the employer is required to provide to employees related to the COVID-19 pandemic. (See earlier coverage.) Yesterday, in Notice 2020-54, the IRS announced that employers will have to report wages paid for leave mandated under the FFCRA either on Forms W-2 or on a separate statement. The rules are intended to enable employees who also have self-employment income to properly determine the amount of any Self-Employment Contributions Act (“SECA”) tax credits to which they are entitled under the FFCRA.
The FFCRA requires employers with fewer than 500 employees (a “covered employer”) to provide employees, who have been on the job for at least 30 days, to the extent they cannot work or telework, with the right to take up to 12 weeks of job-protected leave under the Family and Medical Leave Act (“FLMA”) to care for a child, under the age of 18, of an employee who has lost access to child care, due to coronavirus. After 10 days of unpaid leave, a covered employer is required to pay an employee no less than 2/3 of the employee’s usual wages up to a maximum of $200 per day and $10,000 total (“qualified family leave wages”). The FFCRA also requires covered employers to provide employees, to the extent they cannot work or telework, with two weeks (80 hours for full-time employees) of paid sick leave, paid at the employee’s regular rate (up to a cap of $511 per day and $5,110 total), to quarantine or seek a diagnosis for coronavirus or, paid at 2/3 the employee’s regular rate (up to a cap of $200 per day and $2,000 total) to care for a family member for such purposes or to care for a child (“qualified sick leave wages”). Employers should already be tracking these amounts separately in their payroll systems, as these wages are also required to be reported on the revised Form 941.
Information Reporting for Qualified Family Leave Wages and Qualified Sick Leave Wages
Under the notice, covered employers must report the amount of qualified family leave wages paid either in Box 14 of Form W-2 or on a separate statement. The amount must be labeled using the following, or similar, language “emergency family leave wages”). Covered employers must also separate report the amount of qualified sick leave wages paid to an employee who was subject to a quarantine or isolation order, advised by a health care provider to self-quarantine due to COVID-19 concerns, or seeking a diagnosis related to COVID-19 symptoms (those wages being subject to the $511 per day limit above) and the amount of qualified sick leave wages paid to care for a family member for such purposes of to care for a child (those wages being subject to the $200 per day limit above). These amounts must be labeled using the following, or similar, language: “sick leave wages subject to the $511 per day limit” and “sick leaves wages subject to the $200 per day limit,” respectively. Employees who also have self-employment income will then use the information to complete as-yet unreleased new Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals.
If a separate statement is used, and the employee receives a paper Form W-2, the separate statement must be provided with the Form W-2. Similarly, if the employee receives an electronic Form W-2, the separate statement, if used, must be provided in the same manner and at the same time as the Form W-2.
Inclusion in Boxes 3 (Social Security Wages) and Box 5 (Medicare Wages)
Although qualified family leave wages and qualified sick leave wages are excluded from FICA wages for purposes of the employer social security tax, they are included in wages for purposes of employee social security tax and the employer and employee shares of Medicare taxes. Accordingly, qualified family leave wages and qualified sick leave wages should be reported with other FICA wages in Boxes 3 (subject to the wage base) and 5 of Form W-2.
Instructions to Employees
Covered employers may, but are not required to, provide instructions to the employees regarding the information reported in Box 14 (or on the separate statement). The notice provides model instructions that an employer may use for that purposes. The model instructions explain that the amounts must be reported on Form 7202, if the employee has self-employment income in addition to wages, to determine any applicable SECA tax credits.