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By now, most employers have heard about the Family First Coronavirus Response Act (FFCRA), usually because an employee needed emergency paid sick leave (EPSL) or family medical leave (EFMLA) due to COVID-19. In return for eligible employers giving eligible employees FFCRA leave, the employer receives the benefit of tax credits as reported on the employer’s quarterly Form 941. The IRS has now addressed the mystery of how an employer reports FFCRA income paid to employees.
In Notice 2020-54, the IRS states that employers must not only include amounts paid under FFCRA as wages on the employee’s Form W-2 in boxes 1, 3 (up to the social security wage base) and 5, but also separately break down the amounts in box 14 on the W-2 or some other separate statement. Below, we outline some additional details on your reporting options.
If you choose to separately report the specific amounts using box 14 on the Form W-2, the type of FFCRA amount paid must be clearly labeled:
Employers have the option to provide additional information as part of the Employee Instructions for box 14 and explain that these wages may limit the amount of qualified sick leave equivalent or qualified family leave equivalent credits to which the employee may be entitled with respect to any self-employment income. The IRS notice includes model language that may be used.
Employers may choose to use a separate statement to detail the FFCRA payments instead of box 14 on the W-2. Employers would still provide the amounts paid in on the W-2 as required in boxes 1, 3 and 5, but provide the payment breakdown in the separate statement (using the same guidelines as outlined in the W-2 method, above). The statement must be provided in the same manner that the W-2 is distributed; electronic or hardcopy.
IRS Notice 2020-54 also identifies a yet to be released Form 7202: “Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals” to be used by self-employed individuals to report their income information.
While it’s good to know that employers have the option of including a FFCRA breakdown on the Form W-2 or a separate statement, reporting may prove to be a logistical challenge. Some employers may not have been categorizing FFCRA time separately from other types of sick or PTO hours for compensation purposes. Some may have gone so far as to create a separate code for wages paid under FFCRA. Some may have even gone one step further to create separate codes for EFMLA and EPSL time used. But, unless you or your payroll provider had the foresight to create three new payroll codes (EFMLA, EPSL for the employee’s care and EPSL for the employee to care for someone else), you may be hard-pressed to easily identify this breakdown next January when it comes time to generate Form W-2s. In that case, you may want to review your payroll records now and identify these wages before too much more time has passed.
Clients with access can contact the Hotline with questions or for additional guidance.
Kat provides employer-focused guidance on compliance solutions with an emphasis on employee benefits.
Kat is a compliance and workplace solutions consultant for USI. In this position. She provides employer-focused guidance on compliance solutions with an emphasis on employee benefits. She helps to translate the complexity of employment compliance laws into an understandable solution for clients. Kat joined USI in 2019, prior to that she worked in the insurance industry providing compliance assistance to employers of all demographics. Kat began her employee benefits career working with the United States Department of Labor in the Chicago Regional Office as an investigator and coordinator of the Voluntary Fiduciary Compliance Program (VFCP).
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