IRS Guidelines for Employers:
How To Obtain Tax Credits For New Leaves
Employer Question: What information do I need to create, ask for, maintain or present in order to obtain the tax credits offered under the new emergency leave laws?
Answer: The Internal Revenue Service (“IRS”) recently published information advising employers what information is needed in order to substantiate an employee taking paid sick leave or the Extended FMLA that will allow the employer to obtain the tax credit for paying wages under the emergency leaves.
Guidelines from the IRS:
An Eligible 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:
- 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 for such reason; and
- A statement that the employee is unable to work, including by means of telework, for such reason.
Leave Based on Quarantine
In the case of 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, if the person subject to quarantine or advised to self-quarantine is not the employee, that person’s name and relation to the employee.
Leave Based on School Closing or Unavailability of Childcare
In the case of a leave request based on a school closing or child care provider unavailability, 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. With respect to the employee’s inability to work or telework because of a need to provide care for a child older than fourteen (14) during daylight hours, a statement that special circumstances exist requiring the employee to provide care.
The IRS further advised eligible employers to maintain additional records in order to substantiate eligibility for an employee utilizing the emergency sick leave that would allow for receipt of the tax credit.
An Eligible Employer will substantiate eligibility for the sick leave or family leave credits if, in addition to the information set forth above, the employer creates and maintains records that include the following information:
- 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.
- 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).
Employers should keep all records for four (4) years after the date the tax becomes due or is paid, whichever is later.
Additional information can be found on the IRS’ website: COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs. We encourage you to visit their site.Please see our other newsletters for more information about COVID-19-related relief.