IRS Guidance on FFCRA Sheds Light on Tax Credits and Leave Requirements
The Families First Coronavirus Response Act (“FFCRA”) requires employers with fewer than 500 employees and government employers to provide emergency sick and FMLA leave benefits to employees for reasons related to COVID-19. The FFCRA helps non-government employers pay for these benefits by providing refundable tax credits to cover the additional costs. On March 31, 2020, the Internal Revenue Service published “Basic FAQs” regarding these tax credits, which include information about how employers can claim the credits on their tax returns and obtain advances on refunds to cover the cost. The guidance also answers some important questions about how employers should interpret and document an employee’s entitlement to leave under the FFCRA. Some highlights of the guidance include:
Documenting Leave Requests:
The IRS’ FAQs make clear that employers seeking a tax credit must substantiate an employee’s eligibility for emergency paid sick or FMLA leave. The IRS states that leave requests should be made in writing and include the following:
- The employee’s name;
- The date or dates for which leave is requested;
- A statement of the COVID-19 related reason the employee is requesting leave and written support of such reason; and
- A statement that the employee is unable to work, including by means of telework for such reason.
Concerning #3 above, the IRS explains that if an employee submits a leave request “based on a quarantine order or self-quarantine advice, the statement from the employee should include”:
- The name of the governmental entity ordering quarantine or the name of the health care professional advising self-quarantine; and
- In instances where the employee is seeking leave to care for a family member who is subject to quarantine or advised to self-quarantine, the name of the person the employee is caring for and their relation to the employee must be included.
If, however, an employee seeks leave to care for a child whose school or place of care is closed, or whose child care provider is unavailable, due to COVID-19 related reasons, the employee’s statement must include:
- The name and age of the child(ren) to be cared for;
- The name of the school that has closed or place of care that is unavailable;
- A representation that no other person will be providing care for the child during the period for which the employee is receiving family medical leave; and
- If the child is older than 14, the employee must include a statement that special circumstances exist requiring the employee to provide care to the child during daylight hours.
The IRS’ guidance is clear that if there is another caretaker available to care for a child, the employee would not be eligible for paid leave under the FFCRA. Practically speaking, this means that only one parent in a household can receive either emergency paid sick leave or expanded FMLA leave if the reason for leave is to care for a child whose school or place of care is closed or whose child care provider is unavailable.
Additionally, the IRS clearly states that children over age 14 should be able to care for themselves absent “special circumstances.” The IRS has not given any examples of what special circumstances might permit an employee to care for a child ages 15 to 17 and still receive paid leave. The DOL’s guidance, which was recently updated, clarifies that an employee may take leave to care for a child 18 or over whose mental or physical disability renders the child incapable of self-care. This is consistent with existing law under the FMLA.
Additional Records Employers Must Maintain:
The IRS’ FAQ also provides that employers must create and maintain the following records to obtain a tax credit:
- Documentation to show how the employer determined the amount of qualified sick and family leave wages paid to employees that are eligible for credit, including but not limited to records of hours of work, telework and qualified sick leave and qualified family leave.
- Documentation demonstrating how the employer determined the amount of qualified health plan expenses that the employer allocated to wages. The IRS provides guidance to employers on how to compute this allocation in response to question 31.
- Copies of any completed Forms 7200, Advance Payment of Employer Credits Due To COVID-19, that the employer submitted to the IRS.
- 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).
These additional records, along with the documentation of leave requests, must be maintained for at least 4 years after the date the tax becomes due or is paid, whichever comes later, so that they are available for IRS review.
Obtaining Advanced Credits:
The FFCRA allows an employer who is required to provide paid leave under the Act but who does not have sufficient federal employment taxes set aside for deposit to cover those payments to apply for advanced tax credits. The IRS’ guidance establishes the process for obtaining these advanced credits, which requires the employer to file a Form 7200, Advance Payment of Employer Credits Due to COVID-19. Employers may send the completed Form 7200 to the IRS via fax at 855-428-0552. The IRS states that it expects to begin processing requests for advanced payment of tax credits in April 2020.
As additional information becomes available, we will update you. In the meantime, if you have questions, do not hesitate to reach out to Tracey Truesdale, Bill Pokorny, Erin Fowler, or any other Franczek attorney.