IRS Issues New Guidance for Complying with Paid Sick and Family Leave Reporting Requirements

By and
July 9, 2020

Way back in March, as the pandemic began to set in, Congress quickly passed the Families First Coronavirus Response Act (the Act) as part of a barrage of legislation aimed at providing relief to American workers.  The Act requires that companies with fewer than 500 employees offer expanded paid leave—80 hours of paid sick leave for those unable to work due to the virus and up to 10 weeks of partially paid family leave for those unable to work due to school or daycare closures—and compensates those companies with fully refundable tax credits.  Self-employed individuals who take paid leave are also entitled to tax credits.

On Wednesday, the IRS finally issued some guidance aimed at clarifying the Act’s reporting requirements.  Under the new guidance, employers are required to report to employees the sick leave wages and family leave wages they were paid, carefully stating each amount separately inside Box 14 of a W-2 Form or in an attached statement.  These figures must be accompanied by one of several labels that correspond to the type of paid leave and its justification.  They are all provided in the third section of the guidance, but to give an example, when labeling the amount of sick leave wages paid to an employee who missed work due to COVID-19 symptoms, employers should use language similar or identical to “sick leave wages subject to the $511 per day limit.”

This guidance was designed to help self-employed individuals who also earn wages as employees gain the information necessary to file for their own tax credit.  Without the variegated paid leave reporting requirements set forth here, a factory employee who moonlights as a self-employed maintenance man (and takes paid leave from both jobs under the Act) would have real difficulty filing an accurate tax credit claim.  Regardless of its purpose, employers would be wise to familiarize themselves with these new requirements and comply with them.

A special thank you to our summer clerk, Lucas Sczygelski, for his assistance in writing this post.

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