IRS Issues Updated FFCRA Tax Credit FAQs for COVID-19 Paid Leave

On March 4, 2022, the IRS released two fact sheets (FS) that updated two sets of FAQs on the FFCRA Paid Sick Leave Act (“EPSLA”) and Emergency Family and Medical Leave Expansion Act (“Expanded FMLA”). One set of the FAQs focuses on the tax credits that are applied to leaves taken prior to April 1, 2021 (FS-2022-16), and the other describes the tax credit applied to leaves taken between April 1, 2021, to September 30, 2021 (FS 2022-15). The IRS also added four new FAQs to address when an employer claims the tax credits for qualified leave wages paid after December 31, 2021, for leave taken by an employee in 2020 and 2021 and whether the employer is required to furnish a Form W-2c (Corrected Wage and Tax Statement) correcting the amount of sick leave and family leave wages reported in Box 14 of the employee’s 2020 and/or 2021 Form W-2 to the employee.

The FFCRA included provisions mandating employers with fewer than 500 employees to provide paid leave to employees who are unable to work or telework due to certain COVID-19-related reasons. To offset the financial burden to covered employers, the FFCRA provides for federal tax credits to fund the leave payments. Originally, the FFCRA required covered employers to provide paid leave under the EPSLA and the Expanded FMLA with respect to leave taken by eligible employees from April 1, 2020, through December 31, 2020. Subsequently, the COVID-related Tax Relief Act of 2020 extended the tax credit under the FFCRA through March 31, 2021, and then the American Rescue Plan Act of 2021 (ARPA) further extended the tax credit availability through September 31, 2021, for employers who chose to continue to provide FFCRA leaves on a voluntary basis.

Specifically, the new addition, Question 98a in FS-2022-15, explains that an employer that claims the tax credits for qualified leave wages paid after December 31, 2021, for leave taken by an employee from April 1, 2021, through September 30, 2021, must furnish the employee a Form W-2c to correct the amount of sick leave and family leave wages reported in Box 14 of the employee’s 2021 Form W-2. Similarly, Question 54g in FS-2022-16 clarifies that an employer that claims the tax credits for qualified leave wages paid after December 31, 2021, for leave taken from April 1, 2020, through March 31, 2021, must either furnish the employee a Form W-2c or provide a corrected statement to correct the prior reporting.

For self-employed individuals who claimed the self-employed equivalent leave credit, Q65c (FS-2022-16) and Q116a (FS-2022-15) address whether they need to file an amended individual tax return if they receive a Form W-2c regarding corrected qualified leave wages from their employers.

Employers should be aware of these new clarifications and review the updated FAQs to determine if they need to issue a W-2c or corrected statement to the employee for the payment made after December 31, 2021.