Recently, the IRS released Notice 2020-54, which provides guidance to employers on the requirement to report the amount of qualified sick leave wages and qualified family leave wages paid to employees under the Families First Coronavirus Response Act. Qualified sick leave and qualified family leave wages are wages subject to withholding of federal income tax including the employee’s share of social security and Medicare taxes.
Self-employed individuals claiming qualified sick leave equivalent or qualified family leave equivalent credits must then report these qualified sick leave and qualified family leave wage amounts on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, included with their income tax returns, and reduce (but not below zero) any qualified sick leave or qualified family leave equivalent credits by the amount of these qualified leave wages.
Reporting Qualified Sick Leave Wages
In addition to including qualified sick leave wages in the amount of wages paid to the employee reported in Boxes 1, 3 (up to the social security wage base), and 5 of Form W-2 (or, in the case of compensation subject to the Railroad Retirement Tax Act (RRTA), in the amount of RRTA compensation paid to the employee reported in Boxes 1 and 14 of Form W-2), employers must report to the employee the following type and amount of the wages that were paid, with each amount separately reported either in Box 14 of Form W-2 or on a separate statement:
- the total amount of qualified sick leave wages paid because of being subject to a Federal, State, or local quarantine or isolation order related to COVID-19; being advised by a health care provider to self-quarantine related to COVID-19; or experiencing COVID-19 symptoms and is seeking a medical diagnosis; in labeling this amount, the employer must use the following, or similar, language: “sick leave wages subject to the $511 per day limit;” and
- the total amount of qualified sick leave wages paid because of caring for an individual subject to an order described in (1) or self-quarantine as described in (2); is caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19; or experiencing any other substantially-similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury. in labeling this amount, the employer must use the following or similar language: “sick leave wages subject to the $200 per day limit.”
If a separate statement is provided and the employee receives a paper Form W-2, then the statement must be included with the Form W-2 provided to the employee, and if the employee receives an electronic Form W-2, then the statement will be provided in the same manner and at the same time as the Form W-2.
Reporting Qualified Family Leave Wages
In addition to including qualified family leave wages in the amount of wages paid to the employee reported in Boxes 1, 3 (up to the social security wage base), and 5 of Form W-2 (or, in the case of compensation subject to RRTA, in the amount of RRTA compensation paid to the employee reported in Boxes 1 and 14 of Form W-2), employers must separately report to the employee the total amount of qualified family leave wages paid to the employee either in Box 14 of Form W-2 or on a separate statement. In labeling this amount, the employer must use the following, or similar, language: “emergency family leave wages.”
If a separate statement is provided and the employee receives a paper Form W-2, then the statement must be included with the Form W-2 sent to the employee, and if the employee receives an electronic Form W-2, then the statement shall be provided in the same manner and at the same time as the Form W-2.
Model Language for Employee Instructions
As part of the Instructions for Employees, under the instructions for Box 14, for the Forms W-2, or in a separate statement sent to the employee, the employer may provide additional information about qualified sick leave wages and qualified family leave wages and explain that these wages may limit the amount of the qualified sick leave equivalent or qualified family leave equivalent credits to which the employee may be entitled with respect to any self-employment income.
The following model language (modified as necessary) 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.”