When an Employee Needs Leave Under the FFCRA, What Documentation Does the Employer Require to Receive Tax Credits?

Our employee says they need Paid Leave under the FFCRA. What documentation can the company require from the employee to ensure these payments qualify for employer tax credits?

Under the Families First Coronavirus Protection Act (FFRCA), employers are eligible for tax credits for any payment of qualified Emergency Sick Leave or Emergency Family and Medical Leave benefits mandated by the new law.  Going forward, employers must be sure to require and maintain appropriate documentation from employees requesting leave to substantiate to the IRS that the employer credit is warranted. Additional information about what constitutes a “qualified” use of Emergency Sick Leave or Emergency Family and Medical Leave can be found here.

Eligible employers are entitled to retain a 100% credit for the payment of all qualified sick leave and family leave wages, plus allocable qualified health plan expenses and the employer’s share of Medicare taxes, rather than depositing them with the IRS.  Employers must retain records and documentation related to and supporting each employee’s leave to substantiate the claim for the credits, and retain the Forms 941, Employer’s Quarterly Federal Tax Return, and 7200, Advance of Employer Credits Due To COVID-19, and any other applicable filings made to the IRS requesting the credit.

Information from the employee to substantiate eligibility for emergency sick leave and emergency family leave tax credits
According to an FAQ issued by the IRS, an employer will substantiate eligibility for the sick leave or family leave credits if the employer receives a written request for such leave from the employee in which the employee provides:

  1. The employee’s name;
  2. The date or dates for which leave is requested;
  3. A statement of the COVID-19 related reason the employee is requesting leave and written support for such reason; and
  4. A statement that the employee is unable to work, including by means of telework, for such reason.

In the case of a leave request based on a quarantine order or self-quarantine advice from a treating physician, 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, if the person subject to quarantine or advised to self-quarantine is not the employee, that person’s name and relation to the employee.

In the case of a leave request based on a school closing or child care provider unavailability (the only qualifying reason for Emergency FMLA), the statement from the employee should include the name and age of the child (or children) to be cared for, the name of the school that has closed or place of care that is unavailable, and 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, with respect to the employee’s inability to work or telework because of a need to provide care for a child older than fourteen during daylight hours, a statement that special circumstances exist requiring the employee to provide care.

Form for Requesting Leave
Employers should implement standard forms employees can utilize to request leave under FFCRA. These request forms will be necessary to substantiate the tax credits claimed by the employer associated with FFCRA leave requests.  Unfortunately, the DOL has not developed a template form that employers can use for this purpose. A form developed by M3 Insurance Company that appears to comport with the FFCRA requirements can be found here.

When the employee has properly filled out the FFCRA request form and submitted the appropriate documentation to substantiate eligibility for FFCRA leave, the employer should issue the standard FMLA Designation Notice, Form WH-382,  to the employee notifying them of the leave approval (or fill out the “additional information is needed” section if the leave cannot be approved at that time). The Form WH-382 can be found here.

Employers should maintain a copy of FFCRA leave requests in the employee’s personnel file as well as in a separate file containing all leave requests for ease in claiming tax credits and any IRS review.

Additional information to be retained by the employer to substantiate the tax credit
In addition to securing the foregoing documentation from the employee, the employer must create and maintain the following information:

  1. Documentation to show how the employer determined the amount of qualified sick and family leave wages paid to employees that are eligible for the credit, including records of work, telework and qualified sick leave and qualified family leave.
  2. Documentation to show how the employer determined the amount of qualified health plan expenses that the employer allocated to wages. See IRS FAQ 31 “Determining the Amount of Allocable Qualified Health Plan Expenses” for methods to compute this allocation.
  3. Copies of any completed Forms 7200, Advance of Employer Credits Due To COVID-19, that the employer submitted to the IRS.
  4. 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).

An Eligible Employer should keep all records of employment taxes for at least 4 years after the date the tax becomes due or is paid, whichever comes later.  These should be available for IRS review.   A failure to secure substantiating documentation may put at risk the employer’s retained tax credit in the face of an IRS audit.

For simplicity, an employer may want to create a separate file to maintain these documents with subfolders for each employee who participates in this benefit.

The information contained in this publication has been prepared by Lindabury, McCormick Estabrook & Cooper and is for informational purposes only.  The information is not legal advice nor does it substitute for the professional judgment of legal counsel. 

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