Alert / Employee Benefits
IRS addresses W-2 reporting for FFCRA sick and FMLA+ leave

July 14, 2020

The Families First Coronavirus Response Act (FFCRA) requires private employers with fewer than 500 employees, and public (governmental) employers regardless of size, to provide paid sick leave and enhanced FMLA (FMLA+) leave to their workers for reasons related to the COVID-19 virus, beginning April 1, 2020 through Dec. 31, 2020. We previously addressed the temporary leave requirements and the Internal Revenue Service rules that allow private employers to recoup their wage and health insurance costs through their quarterly payroll tax filings.

The IRS has now issued guidance explaining employers’ obligations for reporting FFCRA sick leave and FMLA+ leave payments on employees’ 2020 Forms W-2.  

Lockton comment: The main reason for the IRS’s recent guidance is to give self-employed individuals, who also receive compensation as employees, additional information they may need to correctly claim any tax credits they’re due under the FFCRA. Self-employed individuals may claim tax credits for FFCRA sick and FMLA+ leave payment equivalent amounts they would have been entitled to receive were they employees of an employer. The credit they can claim as self-employed individuals is reduced if they also received FFCRA sick or FMLA+ leave payments as an employee.

This new reporting obligation requires employers to break out the paid leave portions of employees’ compensation solely to assist employees who are also self-employed individuals and who might need the breakout.

Recap of FFCRA sick and FMLA+ leave payments

Under the FFCRA, covered employees may take up to two weeks of paid sick leave for the employee’s coronavirus-related illness or need to seek care or self-quarantine on account of the virus, to care for another individual who has the virus or who must seek care or self-quarantine, or to care for the employee’s child whose school or child care provider is closed or unavailable because of the coronavirus.

FFCRA’s paid sick leave benefits are equal to the employee’s regular wages but capped at $511 per day (and no more than $5,110 in total) for the employee’s own sickness. If the employee is caring for another individual, or a minor child due to a school or child care closing, the benefit is two-thirds of regular wages, capped at $200 per day (and no more than $2,000 in total).

FFCRA’s FMLA+ leave is a separate mandate to provide up to 12 weeks of paid leave if the employee must care for a minor child whose school or place of care is closed, or if the child care provider is unavailable, due to the coronavirus. The first two weeks of FMLA+ leave are unpaid unless eligible under the FFCRA sick pay rules described above.

FFCRA’s FMLA+ benefit is payable at two-thirds of the employee’s regular wages for weeks three through 12, with the benefit capped at $200 per day (and no more than $10,000 in total).

An employer paying sick or FMLA+ wages is not subject to the employer portion of Social Security (OASDI) taxes on those amounts. Although the employer owes the employer portion of the Medicare (HI) tax, it can recoup those amounts through its quarterly payroll tax filings. We explained those rules in our prior alert.

W-2 reporting

Employers are required to separately report FFCRA sick and FMLA+ leave payments on either the employee’s W-2, Box 14 or on a separate tax statement. If a separate statement is provided and the employee receives a paper W-2, then the statement must be included with the W-2 provided to the employee. If the employee receives an electronic W-2, then the statement must be provided in the same manner and at the same time as the electronic W-2.

Sick leave: These wages paid to the employee are included as taxable wages on a W-2 form in Box 1 (wages, tips and other compensation), Box 3 (Social Security wages, but only wage base of $137,700 for 2020) and Box 5 (Medicare wages and tips). In Box 14 of the W-2, the sick leave on account of the employee’s own illness or isolation must be labelled as “sick leave subject to $511 per day limit,” or the employer must use similar language. Sick leave used for caring for another individual, including minor child, must use the following, or similar, language “sick leave subject to $200 per day limit.”

FMLA+ leave: As with sick leave, these wages paid to the employee are included as taxable wages on a W-2 form in Boxes 1, 3 (up to wage base) and 5. In Box 14, the W-2 must identify the FMLA+ leave as “emergency family leave wages,” or the employer must use similar language.

Model language for self-employed

An employer may, but is not required to, provide additional information on how the qualified leave payments may limit the leave equivalents that can be taken for self-employment income. The IRS provides model language in its guidance.

Conclusion

Affected employers should take note of the required data elements needed to properly complete employees’ 2020 W-2 forms. Non-governmental employers should also be preparing now to recoup their wage costs – and associated health plan costs – with their payroll tax filings, the first of which is due at the end of this month (July 31, 2020).

 

Not legal advice: Nothing in this alert should be construed as legal advice. Lockton may not be considered your legal counsel, and communications with Lockton's Compliance Services group are not privileged under the attorney-client privilege.

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