July 10, 2020
The Internal Revenue Service (IRS) and Treasury Department have issued Notice 2020-54, providing guidance to employers on reporting employee compensation received for leave taken under the Families First Coronavirus Response Act (FFCRA). Employers are required to report these amounts in either Box 14 of Form W-2, or in a statement provided with the Form W-2.
The reporting requirement provides self-employed individuals who are also employees with the information necessary to claim sick and family leave tax credits for which they are eligible. According to Notice 2020-24, these individuals must also report on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, included with their income tax returns.
The guidance also provides employers with optional language to use in the Form W-2 instructions for employees, explaining that the FFCRA leave wages may limit employees’ tax credits for FFCRA leave with respect to any additional self-employment income.
The FFCRA provides for two weeks of paid sick leave for employees of covered employers (generally companies with fewer than 500 employees, and Federal, state, and local government entities, regardless of size) who are unable to work or telework due to one of six COVID-19 related reasons outlined in Division E of the FFCRA. In addition, Division C of the FFCRA expanded the Family and Medical Leave Act of 1993 (FMLA) to provide paid family leave to employees unable to work or telework in order to care for a son or daughter whose school or place of care is closed or whose child care provider is unavailable for reasons related to COVID-19.
Qualified sick leave and family leave wages must be included in the amount of wages paid to the employee in Boxes 1, 3 (up to the social security wage base), and 5 of Form W-2. Under this Notice, employers must also reflect the type and amount of the wages that were paid, with each amount separately reported either in Box 14 of Form W-2 or on a separate statement:
The amount of sick leave payment applicable to leave taken by an employee who was unable to work or telework because he or she needed to attend to his or her self-care is $511 per day ($5,110 total). In labeling this amount, the employer must use the following, or similar, language: “sick leave wages subject to the $511 per day limit”.
If the reason for the sick leave was related to the employee having to take leave to care for another individual, including a son or daughter whose school or place of care was closed for COVID-19 related reasons, the maximum amount of leave is $200 per day ($2,000 total). In labeling this amount, the employer must use the following or similar language: “sick leave wages subject to the $200 per day limit.”If the reason for the leave payments was emergency FMLA leave, the employer must use the following or similar language: “emergency family leave wages.”
Please also feel free to reach out to your Burnham Benefits Consultant or Burnham Benefits at 949-833-2983 or firstname.lastname@example.org. For up-to-date information on COVID-19, please also visit our dedicated Response Center at burnhambenefits.com/covid-19.
Burnham Benefits does not engage in the practice of law and this publication should not be construed as the providing of legal advice or a legal opinion of any kind. The consulting advice we provide is intended solely to assist in assessing its compliance with the Patient Protection and Affordable Care Act and other applicable federal and state law requirements, and is based on Burnham Benefit’s interpretation of federal guidance in effect as of the date of this publication. To the best of our knowledge, the information provided herein, and assumptions relied on, are reasonable and accurate as of the date of this publication. Furthermore, to ensure compliance with IRS Circular 230, any tax advice contained in this publication is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another person any tax-related matter.