On July 8, 2020, the Internal Revenue Service (IRS) and the Treasury Department issued Notice 2020-54, providing guidance for employers when reporting the Families First Coronavirus Response Act (FFCRA) wages. According to this Notice, employers need to separately report Qualified Sick Leave Wages and Qualified Family Leave Wages either on Form W-2 2020 or in a statement provided with the Form W-2 2020. Therefore, employers that are subject to these paid leave requirements need to ensure that their Form W-2 reporting will meet the new requirements.
The wage amount that employers have to report on Form W-2 2020 will offer self-employed individuals who are also employees the information necessary to determine the amount of any sick and family leave equivalent credits they can claim in their self-employed capacities. The guidance also gives employers some optional language they can use in the Form W-2 2020 instructions for employees.
The Families First Coronavirus Response Act (FFCRA), signed into law on March 18, 2020, created two new emergency paid leave requirements in response to the COVID-19 global pandemic. The Emergency Paid Sick Leave Act (EPSLA) entitled certain employees to take up to two weeks of paid sick leave. In addition to this, the Emergency Family and Medical Leave Expansion Act (EFMLEA) permitted certain employees to take up to twelve weeks of expanded family and medical leave, ten of which are paid, for specified reasons related to COVID-19. The leave benefits under the FFCRA are in effect between April 1, 2020, and December 31, 2020.
The Act covers private employers with fewer than 500 employees and certain public employers. Small employers with fewer than 50 employees may qualify for an exemption from the requirement to provide paid leave due to school, place of care, or child care provider closings or unavailability, if the leave payments jeopardize the viability of their business.
Paid leave requirements and the related tax credit vary depending on the reason for leave:
- Sick leave wages up to $511 per day because of the care required for the employee. This refers to situations when the employee:
- Is subject to a federal, state or local quarantine or isolation order related to COVID-19;
- Has been advised by a health-care provider to self-quarantine due to concerns related to COVID-19;
- Is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
- Sick leave wages at two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for care that the employee provided to others, if the employee:
- Is caring for an individual who is subject to a quarantine or isolation order related to COVID-19, or has been advised by a health-care provider to self-quarantine related to COVID-19;
- Is caring for a son or daughter if the school or child-care facility has been closed or the child-care provider is unavailable due to COVID-19; or
- Is experiencing any other substantially similar condition specified by the Department of Health and Human Services (HHS).
- Expanded paid family and medical leave at two-thirds of the employee’s regular rate of pay, to a limit of $200 per day and $10,000 in aggregate, if the employee is unable to work or telework because the employee is caring for a son or daughter whose school or child-care facility is closed related to COVID-19.
Reporting of FFCRA Wages on Form W-2 2020
Employers with fewer than 500 employees are required to provide mandatory sick and family leave pay to employees unable to work as a result of COVID-19. As these payments are taxable wages, they are reported in boxes 1, 3, and 5 of Form W-2 2020. However, FFCRA amounts have to be separately reported either in Box 14 of Form W-2 2020 or on a separate statement, with the following descriptions:
- Sick leave wages paid because of care required for the employee described as sick leave wages subject to the $511 per day limit.
- Sick leave wages for care the employee provided to others, described as sick leave wages subject to the $200 per day limit, or
- Qualified family leave wages, described as emergency family leave wages.
Employers need to separately state each of these wage amounts either on Form W-2 2020, Box 14 or on a separate statement. If a separate statement is provided and the employee receives a paper Form W-2 2020, the statement should be included with the Form W-2 sent to the employee. In case the employee receives an electronic Form W-2 2020, the statement should be provided in the same manner and at the same time as the Form W-2.
Complying with Form W-2 2020 Reporting
Both the FFCRA and Coronavirus Aid, Relief, and Economic Security (CARES) Act are designed to help employers and employees during the global pandemic. While Notice 2020-54 provides self-employed individuals with the information they need to properly claim any credits for which they may be eligible, it also requires additional reporting requirements for employers or their payroll providers to track and satisfy. Also, the IRS will probably use the additional information reported on the Form W-2 2020 to check the information and refundable tax credits reported on the employer’s applicable payroll tax returns.
Therefore, employers need to pay close attention to new requirements and review the Notice’s model language for their Form W-2 instructions. In their efforts to maintain Form W-2 2020 tracking and reporting considerations related to the FFCRA paid leave wages, employers can also consider outsourcing tax management. With the help of an automated payroll tax solution, it is possible to ensure compliance with complex and changing regulations as well as prevent severe penalties for noncompliance.Eliminate complicated tax calculations and costly mistakes and ensure compliance with regulatory agencies with automated tax management software.