Under the recent Families First Coronavirus Response Act (FFCRA), employers with fewer than 500 employees must provide paid sick leave and expanded family and medical leave to employees unable to work due to COVID-19 related reasons.
Employers who pay for this new leave are eligible for a tax credit to reimburse them, dollar-for-dollar, for the cost of paid leave and the cost to maintain health insurance during expanded family and medical leave.
Here’s how the tax credit works: Eligible employers are able to retain the Social Security, Medicare, and federal income taxes they withhold from employees’ pay to offset these costs. If employers do not have sufficient payroll taxes to cover these costs in full, they can file a request for accelerated payment from the IRS for the difference.
To take advantage of the tax credit, employers must retain “appropriate documentation” showing that the costs were for legitimate FFCRA reasons. Employers who fail to retain these records risk losing the credit.
The reasons for the employee’s leave request will determine what “appropriate documentation” must be retained. There are three general categories of reasons that would qualify an employee for paid leave under the FFCRA:
- 1The employee or someone the employee cares for is subject to a government quarantine or isolation order related to COVID-19;
- The employee or someone the employee cares for is self-quarantining by order of, or is seeking treatment from, a health care provider for COVID-19 symptoms; or
- The employee’s dependent’s school or child care provider is closed/unavailable due to COVID-related reasons.
For category #1, employers should retain the government quarantine or isolation order, and any notices issued by the government entity supporting the order.
For category #2, employers should have employees submit written certifications from health care providers to confirm the reason for the employee’s leave is related to COVID-19. Employers should be flexible here given the strain on health care providers’ time during the pandemic. As always, treat these medical records as confidential, and segregate them from other personnel records.
For category #3, employers should retain written confirmation of the school’s or day care’s closure. This can take the form of a website posting, a newspaper article, or an email from the provider confirming the closure was due to COVID-19 related reasons. Again, employers need to be flexible and work with employees in documenting these closures.
The U.S. Department of Labor and the IRS will soon be issuing additional guidance on the procedures for this new tax credit and the documentation needed to claim the credit. We’ll continue to provide updates as additional information becomes available.
This post was written by Jim O’Connor, Rachel Felton and Justin Barron