IRS Issues Employer Guidance on COVID-19 Paid Leave Tax Credits

On September 7, the U.S. Treasury Department and Internal Revenue Service (IRS) issued Notice 2021-53, which includes guidance to employers on reporting the amount of qualified sick and family leave wages paid to employees for leave taken in 2021 as provided by the Families First Coronavirus Response Act (FFCRA) and as amended by the Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021.

The FFCRA required private sector employers with 500 or fewer employees to provide emergency paid family and medical leave and emergency paid sick leave to employees who could not work or telework due to certain COVID-19 complications. The FFCRA also established fully refundable tax credits that employers may receive after providing the emergency paid family and sick leave. The tax credits under the FFCRA were set to expire on December 31, 2020, but they were extended to cover wages voluntarily paid through March 31, 2021 under the Consolidated Appropriations Act of 2021 and again through September 30, 2021 under the American Rescue Plan Act of 2021. Employers were no longer required to provide the paid sick and family and medical leave wages to employees after the enactment of the Consolidated Appropriations Act, but employers that voluntarily provided paid leave that would have satisfied the paid family leave and paid sick leave requirements under the FFCRA were eligible for the same fully refundable tax credits.

The new IRS notice states that employers will be required to report the amount of qualified sick and family leave wages paid to employees between January 1 and September 30, 2021 either on the Form W-2, Box 14, or in a separate statement provided with the Form W-2. The notice also includes model language to help employers communicate information about the qualified sick leave and family and medical leave wages to employees, as well as the impact these wages may have on tax credits the employee may be entitled to with respect to self-employment income.

CUPA-HR will keep members apprised of any additional tax-related guidance from the IRS as it relates to COVID-19 policies and guidance.