How Employers Can Take Advantage of Tax Credits under the New FFCRA Legislation
The Families First Coronavirus Response Act (FFCRA) creates, for the first time, a federal requirement to issue paid sick leave and paid FMLA benefits for most private employers with fewer than 500 employees. To help offset the cost, the legislation permits employers to claim tax credits on qualifying paid leave wages, certain health plan expenses, and the employer’s share of Medicare taxes. Employers may take advantage of this by claiming tax credits on their quarterly tax filings, or by reducing employment tax deposits. If an employer cannot make full use of the credits, it may request an advance via federal tax Form 7200, Advance of Employer Credits Due To COVID-19.
Importantly, employers who receive requests from employees to use FFCRA leave should retain records to substantiate the need for leave, and also to claim the tax credits. Importantly, the IRS’s recent guidance appears to require a higher level of certification than the Department of Labor’s guidance. The IRS recommends retaining following records:
- records and documentation related to and supporting each employee’s leave to substantiate the claim for the credits, which includes:
- 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 (the details vary depending on the need for leave, and may be found in the IRS’s Frequently Asked Questions)
- A statement that the employee is unable to work, including by means of telework, for such reason.
- Tax Form 941;
- Employer’s Quarterly Federal Tax Return;
- Form 7200, Advance of Employer Credits Due To COVID-19, if applicable; and
- any other applicable filings made to the IRS requesting the credit.