The IRS released FAQs for employers with fewer than 500 employees seeking to receive tax credits for sick and family leave wages paid pursuant the Families First Coronavirus Response Act (FFCRA), which include guidance regarding substantiation of tax credit eligibility. To substantiate a tax credit claim, the employer must obtain a written leave request and maintain documentation summarizing how the qualified leave wages were calculated.
Employee’s COVID-19 Leave Request
The employer must obtain from each employee who is requesting
qualified leave a written request with the following information:
- The employee’s name.
- The leave date(s) being requested by the employee.
- A statement of the COVID-19-related reason for the leave request and written support. Depending on the reason for the leave request, the IRS guidance requires employees to provide particular information. Notably, the IRS guidance does not define or provide examples of written support and, until further guidance is provided, employers should make sure that all request forms include a right for the employer to request additional documentation. Additionally, the employer might consider requesting additional written support depending on the reason for an employee’s leave.
Government-mandated quarantine of employee or family member. If the employee’s request is due to a governmental quarantine order, the employee must provide the name of the governmental entity and, if the order is for the employee’s family member, the name of and the employee’s relationship to the individual. Written support may include documents such as a copy of the quarantine order.
Self-quarantine recommendation from healthcare professional to employee or family member. If the employee’s request is due to a healthcare professional’s self-quarantine advice, the employee must provide the name of the professional and, if the advice was given to the employee’s family member, the name of and the employee’s relationship to the individual. Note that the Center for Disease Control and Prevention (CDC) has recommended that employers do not ask employees for health providers’ notes to validate their (or their family member’s) illness in order to minimize the administrative burden on healthcare providers.
School closing; childcare unavailable. If the employee’s request for leave is due to a school closing or the unavailability of childcare, the employee must provide the name and age of the children, the school’s or childcare provider’s name, and a representation that no one else will provide care to the children during the leave. If the employee is requesting the leave to provide daytime care to a child that is 14 years or older, the employee must provide a statement that special circumstances exist requiring the employee to take leave. Written support may include a notice from a governmental entity, the school or childcare provider, or published in a newspaper, each of which the Department of Labor (DOL) has said an employer may request from an employee.
Seeking COVID-19 medical diagnosis or experiencing any other substantially similar COVID-19 condition as specified by Health and Human Services. No particular additional information is required. While an employer may want written evidence, such as evidence of a visit to a healthcare professional, state and municipal medical privacy laws may limit an employer’s ability to request such documents. Likewise, as mentioned above, the CDC has advised employers to not seek notes from healthcare providers for employees to validate an illness in order to reduce the healthcare providers’ administrative burdens.
- A statement that the employee is unable to work (including via telework) because of the COVID-19-related reason for the leave request.
Records Employer Must Retain
The employer also must retain the following records:
- Documentation showing how the employer determined the amount of qualified leave wages paid to an employee, including records of work (including telework) and qualified leave time.
- Documentation showing how the employer determined the qualified health plan expenses allocated to wages. Generally, qualified health plan expenses are amounts paid or incurred by the employer (including any pretax contributions from employees) to provide and maintain a group health plan, but only to the extent that those amounts are excluded from the gross income of employees by reason of section 106(a) of the Internal Revenue Code. Such amounts should be allocated to qualified leave wages pro rata among employees covered by the employer’s health plan and pro rata on the basis of coverage period relative to the qualified leave period.
However, the allocation of qualified health expenses is highly technical, and employers should consult with their legal advisers and health plan administrators to determine how to apply the allocation rules.
- All filings made to the IRS in connection with the credit, including Forms 7200, Advance of Employer Credits Due To COVID-19 and Forms 941, Employer’s Quarterly Federal Tax Return, (or, if the employer uses a third-party payer, a record of the information provided to the payer regarding the employer’s entitlement to the credit claimed on the form).
Records Should Be Maintained for Four Years
The IRS guidance provides that the employer should maintain all of the substantiation documentation for at least four years after the later of the date the tax becomes due or is paid.
Employers should obtain all the foregoing information in order to substantiate their tax credit requests. Calfee will continue to keep apprised of IRS and other regulatory developments and provide updates as necessary.
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