FFCRA: W-2 Tax Reporting Requirements/Updates With Stimulus Round 2

Organizations subject to the Families First Coronavirus Response Act (FFCRA) who have had employees take coronavirus-related paid leave will need to report related wage information on employee W-2s for 2020. The changes below are mandated by the Families First Coronavirus Response Act (FFCRA), Notice 2020-54.

Your Requirements for Form W-2 Reporting

According to IRS Notice 2020-54, the FFRCA leave wages are those paid between April 1 and Dec. 31, 2020.

In boxes 1-6 of the W-2, you must include all wages paid the employee throughout their paid coronavirus sick leave. In addition, you will report the total wages paid during their paid sick leave in Box 14 of the W2 or develop a separate statement with the information. According to the IRS Guidance, the employee should be informed that:

“…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 develop a separate statement for the employee, similar information to that used above must be shown on the statement. Refer to the IRS guidance for more information. Employees with self-employment income should be notified to review IRS Form 7202 for additional requirements.

The Benefits for Your Organization

IRS Notice 2020-54 goes on to note that organizations will receive tax credits for all wages falling under the FFRCA, “plus allocable qualified health plan expenses.” The notice details further benefits to your organization regarding tax credits for Medicare and Social Security taxes paid by your company for these amounts.

An Update in Light of the New Stimulus Package

The FFCRA required certain employers to provide paid coronavirus-related leave through Dec. 31, 2020. However, this mandate was not renewed with the second stimulus package signed into law on Dec. 27, 2020.

While employers will not be required to provide this leave beyond 2020, the new relief bill does allow it on a voluntary basis. Employers who choose to do so will also get the resulting tax credit through March 31, 2021, as long as the leave would have qualified (and been mandated) under the FCCRA.

Keep in mind that a full-time employee is still limited to 80 total hours of coronavirus-related paid leave—which means the employer’s corresponding tax credit also has the same restriction. This limit goes back to the moment the FFCRA took effect. For example:

  • An employee took 60 hours of COVID-related paid leave in May of 2020.
  • The employer paid this leave and is claiming a tax credit for the wages paid during this leave on their 2020 return.
  • The same employee needs to take 40 hours of additional pandemic-linked paid leave in January 2021 (and the employer agrees to this leave).
  • Because the maximum is 80 hours, the employer will only receive tax credits for 20 of those additional 40 hours.

Now is the time to decide whether to provide voluntary paid FFCRA leave from now through March 31, 2021. And remember to maintain the documentation required for this leave so your W-2 forms are accurate.

As the pandemic and the political situation in the country evolves day by day, so do new laws and the guidance that accompanies them regarding employer requirements related to wages for sick leave and family. We will continue to keep you informed of new developments.

Our tax team and HR Solutions team can assist your business with this and more. Please contact us for more information.

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