W I Pay Tip of the Day – Required Documentation To Claim Tax Credits for COVid19 Related Paid Leave Payments

Updated DOL/IRS Guidance on Required Documentation

To Claim Tax Credits

for COVid19 Related Paid Leave Payments

The Emergency Paid Sick Leave and paid leave under the Expanded FMLA provisions in the Families First Act established five primary “qualifying reasons” justifying up to 80 hours of Emergency Paid Sick Leave:

  1. Quarantine or isolation order by federal, state, or local authorities related to COVID-19
  2. Employee has been advised to self-quarantine by a health care provider due to concerns related to COVID–19. (Note: this could include advice based solely on an employee’s high-risk status, with no exposure to an infected person or symptoms of infection.)
  3. Employee is experiencing COVID-19 symptoms and is seeking medical diagnosis
  4. Employee is caring for an individual who is quarantined
  5. Due to school or childcare closures, an employee is unable to work to care for children

Up to 10 weeks of Expanded FMLA Paid Leave may be taken, but only for reason No. 5 above.

Employers making payments under this Act are entitled to reimbursement in the form of quarterly tax credits on their federal payroll taxes. The Department of Labor has indicated that in order for employees to be eligible for these paid leave benefits, and for employers to be eligible for reimbursement via quarterly tax credits, employers must obtain specific documentation, established by the Internal Revenue Service, from employees requesting either type of paid leave.

The IRS released guidance last week specifying the documentation that will be needed for employers to receive these tax credits. These guidelines require that each employee seeking leave must provide written documentation containing the following information in connection with their request for Paid Sick Leave (“PSL”) or Emergency Family and Medical Leave (“EFMLA”): (1) employee’s name; (2) the date or dates for which leave is requested; (3) the “qualifying reason” for the leave; and (4) a statement that the employee is unable to work (either on-site or via telework) because of the qualified reason for leave.

Employees must also provide additional documentation depending on the reason for taking the PSL or EFMLA:

  • To take PSL because the employee is quarantined, the employee must also provide the name of the government entity that issued the quarantine or isolation order.
  • To take PSL because the employee has been told to self-quarantine, the employee must also provide the name of the health care provider who advised the employee to self-quarantine due to concerns related to COVID-19.
  • To take PSL because the employee is caring for an individual for COVID-19 reasons, the employee must also provide either: (1) the name of the government entity that issued the quarantine or isolation order to which the individual being cared for is subject; or (2) the name of the health care provider who advised the individual being cared for to self-quarantine due to concerns related to COVID-19. The IRS Guidelines further require that the employee provide the name of the individual being cared for and his or her relation to the employee.
  • To take PSL or EFMLA to care for a son or daughter due to school or childcare closure, the employee must also provide: (1) the name and age of the son or daughter; (2) the name of the school, place of care, or child care provider that has closed or become unavailable; and (3) a representation that no other suitable person will be caring for the son or daughter during the period for which the employee takes PSL or EFMLA. Additionally, with respect to the employee’s inability to work or telework because of a need to provide care for a child older than 14 during daylight hours, the IRS requires a statement that “special circumstances” exist requiring the employee to provide care.

Additional Employer Records and Documentation Required to Obtain the Tax Credit

In addition to the information set forth above, employers must also create and maintain (for four years) records that include the following information:

  • Documentation to show how the employer determined the amount of PSL and EFML wages paid to employees that are eligible for the credit, including records of work, telework, and qualified PSL and EFML.
  • Documentation to show how the employer determined the amount of qualified health plan expenses that the employer allocated to wages.
  • Copies of any completed Forms 7200, “Advance 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).