As employers across the country provide paid leave to employees under the Families First Coronavirus Response Act (FFCRA), many of them have the same question: How am I going to pay for this?
According to FFCRA regulations and guidance from the IRS, qualifying employers offering paid leave are entitled to tax credits that will cover 100% of their paid leave expenses. But to claim those tax credits, employers must collect and maintain specific documentation and records.
To make sure you don’t miss out on tax credits for granting FFCRA leave, here’s a rundown of the recordkeeping requirements.
Information and records from employees
On April 1, 2020, both the IRS and the U.S. Department of Labor (DOL) released guidance on the information employees are required to provide to their employers if they are taking paid sick leave or expanded family and medical leave under the FFCRA. Employers are required to retain this information, which includes:
- The employee’s name.
- The date(s) for which leave is requested.
- The qualifying COVID-19 reason for leave.
- A statement from the employee, supporting the COVID-19-related reason they can’t work (or telework).
- The name of the government entity that issued the quarantine or isolation order for the employee and/or someone they care for (if applicable).
- The name of the health care provider that made the self-quarantine recommendation for the employee or someone they care for (if applicable).
If an employee is requesting expanded family and medical leave, employers must also retain the following employee-supplied information:
- The name of the child being cared for.
- The name of the school, place of care or child care provider that closed or became unavailable due to coronavirus reasons.
- A statement from the employee representing that no other suitable person is available to care for the child during the period of requested leave.
Information and records the employer should have on their end
To substantiate their eligibility for FFCRA tax credits, employers should have and maintain:
- Documentation to show how the employer determined the amount of wages to be paid to employees eligible for paid leave, including records of the employee’s regular work hours (including telework) and regular wages, both of which are used to compute the amount and pay rate of available leave, and records showing the amount of leave actually taken by the employee.
- Documentation to show how the employer determined the amount of qualified health plan expenses that the employer allocated to wages.
- Copies of any completed IRS Forms 7200 that the employer submitted to the IRS.
- Copies of the completed IRS Forms 941 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 payer regarding the employer’s entitlement to the credit claimed on Form 941).
- Copies of the completed Forms 941, Employer’s Quarterly Federal Tax Return, 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).
To stay in compliance with the final DOL regulations, employers should retain all records (including those supplied by employees) for a minimum of four years after the applicable taxes are due or are paid — whichever comes later. Additionally, employers are required to keep these documents for four years regardless of whether the request for leave was granted or denied.
Have more FFCRA-related questions?
If you’re looking for more information on the paid leave provisions and their related tax credits under the FFCRA, we’ve boiled down the basics here. And if you’re looking for additional guidance when it comes to COVID-19-related tax credits, the IRS has added to its ever-growing list of frequently asked questions and answers. Check them out here.
