Tax

Guidance on 2021 Form W-2 Reporting of the Qualified Sick and Family Leave Wages

10.20.2021

Emptech's founder, Jeff Aleixo

Author

Jeff Aleixo

2021 FormW-2, Reporting QUalified Sick and Family Leave Wages, Payroll Tax Compliance

The Internal Revenue Service (IRS) recently issued guidance on 2021 Form W-2 reporting of the qualified sick and family leave wages provided to employees in 2021. Notice 2021-53 covers reporting requirements that apply to qualified sick and family leave wages paid under the Families First Coronavirus Response Act (FFCRA) as amended by the COVID-Related Tax Relief Act of 2020 (Tax Relief Act), and the American Rescue Plan Act of 2021 (ARPA). This guidance is separate from Notice 2020-54, which explains employer reporting requirements for qualified wages from April 1 through Dec. 31, 2020.

FFCRA vs. ARPA

On March 18, 2020, President Donald Trump signed the FFCRA in response to the spread of the novel coronavirus and the illness it causes, COVID-19. The Act generally required covered employers to provide their employees with emergency paid sick leave (EPSL) or expanded family and medical leave (EFML) for specified reasons beginning April 1, 2020, through December 31, 2020. The FFCRA also provided eligible employers with fully refundable tax credits to cover the cost of EPSL and EFML benefits.

The American Rescue Plan Act of 2021 extends tax credits to those employers who voluntarily choose to provide paid leave benefits to employees under the FFCRA. The ARPA has extended employers’ eligibility for tax credits through September 30, 2021, and expanded the list of qualifying reasons for taking paid leave under the FFCRA.

Use this comprehensive guide to ensure effective tax compliance by understanding payroll taxes and your obligations on local, state, and federal levels.

Notice 2021-53 Overview

Notice 2021-53 provides guidance for self-employed individuals, explains the difference between qualified leave wages for the two identified time periods of January 1 through March 31, 2021, and April 1 through September 30, 2021, and provides specific tax reporting instructions for employers.

When it comes to reporting the amount of qualified sick and family leave wages paid in 2021, employers are required to report these amounts to employees either on 2021 Form W-2, Box 14 or in a separate statement provided with the 2021 Form W-2. Eligible employers have to report to employees the amount of qualified sick leave wages and qualified family leave wages paid to the employees under:

  • Sections 7001 or 7003 of the Families First Act for leave provided during the period beginning January 1, 2021, through March 31, 2021, and 
  • Code sections 3131 and 3132 for leave provided during the period beginning April 1, 2021, through September 30, 2021. These qualified leave wages should be reported in Box 1 of 2021 Form W-2. In case qualified leave wages are social security wages or Medicare wages, they should also be included in Box 3 and Box 5, respectively. 

In addition to this, eligible employers have separate reporting requirements for:

  • Leave provided to employees during the period beginning January 1, 2021, through March 31, 2021, under the Families First Act; and 
  • Leave provided to employees during the period beginning April 1, 2021, through September 30, 2021, under Code Sections 3131 and 3132. 

Apart from the regular reporting requirements, employers need to report the following types and amounts of the wages that were paid, with each amount separately reported either in Box 14 of 2021 Form W-2 or on a separate statement to the employee: 

  • The total amount of qualified sick leave wages paid for reasons described in section 5102(a) of the Emergency Paid Sick Leave Act (EPSLA) with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021; 
  • The total amount of qualified family leave wages paid to the employee under the Emergency Family and Medical Leave Expansion Act (EFMLEA) with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021; 
  • The total amount of qualified sick leave wages paid for reasons described in section 5102(a) of the EPSLA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021; 
  • The total amount of qualified family leave wages paid to the employee under the EFMLEA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021. 

As part of the Instructions for Employee, under the instructions for Box 14, for the 2021 Form W-2, or in a separate statement sent to the employee, employers may provide additional information about qualified sick and family leave wages. Up to six types of paid qualified sick leave wages or qualified family leave wages may be reported in Box 14.

Notice 2021-53 also explains what happens if employers who do not claim FFCRA tax credits or are prohibited from claiming them erroneously report sick or family leave wages to an employee on 2021 Form W-2, Box 14, or on a separate statement. In this case, they need to provide Form W-2c, Corrected Wage and Tax Statement, or a corrected statement to the employee correcting the erroneous reporting.

Meeting 2021 Form W-2 Reporting Requirements

While there are many advantages that can be derived from ARPA, such as voluntarily providing paid leave under FFCRA, this also creates new obligations and administrative and compliance complexities for employers. Therefore, employers who are voluntarily providing paid leave benefits under the FFCRA and ARPA need to review and revise their policies and ensure they are meeting 2021 Form W-2 reporting requirements. Furthermore, it is critical to monitor guidances and updates, and stay up to date with evolving payroll tax regulations and COVID-19 related impacts. To better manage the complex requirements of today’s payroll tax landscape, employers can use payroll tax management software. Thus, they can eliminate the hassle and compliance liability of payroll tax processing and prevent potential mistakes without having to worry that payroll taxes were filed correctly.

Automate tax management and simplify the process of ensuring compliance with tax obligations while preventing any penalties.
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