IRS Publishes Overview and FAQs Regarding Recordkeeping and Documentation Requirements for Paid Leave Under the Family First Coronavirus Response Act
As previously reported by memorandum on March 29, 2020, the United States Department of Labor (“DOL”) and the Internal Revenue Service (“IRS”) published a statement explaining that eligible employers (businesses with fewer than 500 employees) can recover the cost of emergency paid sick leave and emergency FMLA leave for COVID-19 related reasons. This relief is available under the Family First Coronavirus Response Act (“FFCRA”) by claiming federal employment tax credits.
On March 31, 2020, the IRS published FAQs that clarify key aspects of the tax credit claims process, including recordkeeping obligations. An overview of the COVID19 related tax credits for eligible employers and the FAQs can be found here: https://www.irs.gov/newsroom/covid-19- related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs.
Significantly, the FAQs highlight that an employer that claims the tax credits for an employee’s paid leave must retain records and documentation related to and supporting such leave to substantiate its claims for tax credits. Accordingly, employers are tasked with obtaining certain information prior to the start of an employee’s paid leave if the employer plans to claim tax credits related to such leave.
An eligible employer can substantiate its claim for the tax credits if it receives and maintains a written request from an employee who seeks to use emergency paid sick leave or emergency FMLA leave that includes the following information:
- The employee’s name;
- The date or dates for which leave is requested;
- A statement of the COVID-19 related reason the employee is requesting leave and written support for such reason; and
- A statement that the employee is unable to work, including by means of telework, for such
The IRS further indicates that an employee’s statement and written support must contain specific information depending on the basis of the employee’s request leave. In the case of an employee requesting leave due to a quarantine order or self-quarantine advice, the statement must include:
- The name of the governmental entity ordering quarantine or the name of the health care professional advising self-quarantine; and,
- If the person subject to quarantine or advised to self-quarantine is not the employee, that person’s name and relation to the
In the event employee’s request leave is based on a school closing or the unavailability of a childcare provider, the statement must include:
- The name and age of the child (or children) to be cared for;
- The name of the school that has closed or place of care that is unavailable;
- A representation that no other person will be providing care for the child during the period for which the employee is receiving family medical leave; and,
- With respect to the employee’s inability to work or telework because of a need to provide care for a child older than fourteen during daylight hours, a statement that special circumstances exist requiring the employee to provide
Notably, the IRS expressly takes the position that if an employee wants to take emergency paid sick leave or emergency FMLA leave to provide care for a child, the employee must be the one who is actually providing such care. Accordingly, paid leave would be unavailable if any other individual in addition to or other than the employee provides care for the child. Also, the IRS requires an employee to identify in the written statement “special circumstances” that require the employee to provide care for a child older than fourteen. Failure of the employee to provide such information would make paid leave unavailable to the employee. The IRS has not yet provided additional guidance regarding what facts constitute “special circumstances.”
An eligible employer will also substantiate eligible for the sick leave or family leave credits if, in addition to the information set forth above, the employer creates and maintains records that include the following:
- Documentation to show how the employer determined the amount of qualified sick and family leave wages paid to employees that are eligible for the credit, including records of work, telework and qualified sick leave and qualified family leave;
- Documentation to show how the employer determine the amount of qualified health plan expenses that the employer allocated to wages;
- Copies of any completed Forms 7200, Advance of Employer Credits Due to COVID-19, that the employer submitted to the IRS; and,
- Copies of the completed Forms 941, Employer’s Quarterly Federal Tax Return, that the employer submitted to the
Lastly, the IRS made clear that employers are obligated to maintain all records and documentation related to each employee’s requested paid leave for at least four years after the date the federal employment taxes becomes due or is paid, whichever comes later, and make such information available to the IRS for review upon request.
If you have any questions, please do not hesitate to contact David R. Rothfeld, Lois M. Traub, Alexander Soric, Jennifer Schmalz, Robert L. Sacks, Jaclyn Ruocco, Joseph Tangredi, or Brian Polivy.