On July 8, 2020, the Internal Revenue Service (IRS) issued IRS Notice 2020-54. This notice requires employers to report the amount of wages paid to employees under the Families First Coronavirus Relief Act (FFCRA). FFCRA leave includes the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical Leave Expansion Act (EFMLEA). Employers will be required to report amounts paid to employees on Form W-2, Box 14 or on a separate statement for leave taken under these acts from April 1, 2020 – December 31, 2020.
Employers are required to separately state the total amount of qualified sick leave wages paid as follows:
- Wages paid to the employee for personal care due to COVID-19 (pursuant to paragraphs (1), (2), or (3) of section 5102(a) of the EPSLA), this must be labeled “sick leave wages subject to the $511 day limit”;
- Wages paid to the employee to care for others due to COVID-19 (pursuant to paragraphs (4), (5), and (6) of section 5102(a) of the EPSLA), this must be labeled “sick leave wages subject to the $200 day limit”; and
- Wages paid to the employee to care for a child due to school or daycare closures related to COVID-19 (pursuant to section 3102(b) of the EFMLEA), this must be labeled “emergency family leave wages”.
These amounts must be reported in Box 14 of the W-2 or on a separate statement. If a separate statement is provided and the employer provides paper W-2s, the statement must be included with the W-2 provided to the employee. If the employee receives an electronic W2, the statement should be provided in the same manner and at the same time as the W-2.
The notice also provides model language for the W2 employee instructions. Employers may provide additional information about the FFCRA wages paid and explain that these wages may limit the amount of FFCRA credits the employee may be entitled to with respect to any self-employment income.
The following model language may be used:
“Included in Box 14, if applicable, are amounts paid to you as qualified sick leave wages or qualified family leave wages under the Families First Coronavirus Response Act. Specifically, up to three types of paid qualified sick leave wages or qualified family leave wages are reported in Box 14:
- Sick leave wages subject to the $511 per day limit because of care you required;
- Sick leave wages subject to the $200 per day limit because of care you provided to another; and
- Emergency family leave wages.
If you have self-employment income in addition to wages paid by your employer, and you intend to claim any qualified sick leave or qualified family leave equivalent credits, you must report the qualified sick leave or qualified family leave wages on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, included with your income tax return and reduce (but not below zero) any qualified sick leave or qualified family leave equivalent credits by the amount of these qualified leave wages. If you have self-employment income, you should refer to the instructions for your individual income tax return for more information.
This notice from the IRS provides employers with needed guidance on how to report sick and/or emergency family leave pay as allowed by the Families First Coronavirus Relief Act on Form W2. Employers should work with their tax advisors and payroll personnel to develop plans to implement these requirements.
The information above is a summary of laws and regulations regarding provisions relating to employee benefit plan compliance. The information should not be construed as legal or tax advice. In all cases, employers should be advised to consult with tier accountant or legal counsel for assistance.