September 14, 2021
IRS updates requirements for reporting qualified COVID-19 paid leave benefits on Form W-2
In Notice 2021-53, the IRS updated the Form W-2 reporting requirements that apply to qualified sick and family leave wages paid in 2021 under the Families First Coronavirus Response Act (FFCRA) as amended by the COVID-Related Tax Relief Act of 2020 (Tax Relief Act), and the American Rescue Plan Act of 2021 (ARP). (See EY Tax Alert 2020-1755.)
Specifically, eligible employers are required to report qualified leave wages on Form W-2 in box 1, 3 and 5 (to the extent the amounts are Social Security and Medicare wages, and only up to the Social Security wage limit for box 3), and 14. In lieu of box 14, employers may provide a separate statement to employees and may provide to employees instructions as included in the model language furnished by the IRS.
The IRS states that this additional Form W-2 reporting requirement is imposed so that employees who are also self-employed can properly claim their qualified sick and family leave equivalent credits. Accordingly, only eligible employers that claim tax credits under the FFCRA are required to separately report qualified sick leave wages and qualified family leave wages to their employees. Eligible employers that forego claiming refundable tax credits under the FFCRA for qualified leave wages are not required to separately report qualified sick leave or qualified family leave wages paid to employees to the extent those wages are not claimed as a credit. Similarly, governmental employers that are prohibited from claiming credits for qualified leave wages are not required to separately report any qualified sick leave wages or qualified family leave wages paid to their employees.
The FFCRA generally required covered employers to provide their employees with emergency paid sick leave (EPSL) or expanded family and medical leave (EFML) for specified reasons beginning April 1, 2020, through December 31, 2020. (DOL, Fact Sheet for Employers.)
The FFCRA also provided eligible employers with fully refundable tax credits to cover the cost of EPSL and EFML benefits. (See the IRS FAQs on COVID-19 tax credits for paid leave.)
Although the federal requirement to provide leave benefits under the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical Leave Expansion Act (EFMLEA) did not apply after December 31, 2020, these tax credits were extended under the Tax Relief Act (January 1, 2021 through March 31, 2021) and the ARP (April 1, 2021 through September 30, 2021) for paid leave that would have satisfied the EPSLA and EFMLEA requirements.
Form W-2 reporting instructions for boxes 1, 3 and 5
FFCRA qualified leave wages are reported in box 1 of Form W-2. To the extent that qualified leave wages are Social Security wages or Medicare covered wages, they must also be included in box 3 (up to the Social Security wage base) and box 5, respectively. To the extent qualified leave wages are compensation subject to the Railroad Retirement Tax Act (RRTA), they must also be included in box 14 under the appropriate RRTA reporting label(s).
In box 14, or a separate statement, affected employers are required to provide the information shown below.
If a separate statement is provided to an employee receiving a paper copy of Form W-2, it must be included with the Form W-2 sent to the employee. If the employee receives an electronic Form W-2, the separate statement must be provided in the same manner and at the same time as the electronic Form W-2.
Form W-2 reporting instructions for box 14
Form W-2, box 14 — model language for optional employee instructions
As part of the instructions for employees, under the instructions for box 14, for Form W-2, or in a separate statement sent to the employee, the employer may provide additional information as shown below.
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 and/or sections 3131 and 3132 of the Internal Revenue Code.
Specifically, up to six types of paid qualified sick leave wages or qualified family leave wages may be reported in Box 14:
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 may have to 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.
Corrective procedure if employer erroneously provides box 14 paid leave benefit information
If an employer that does not claim FFCRA tax credits or is prohibited from claiming those credits erroneously reports sick leave wages or family leave wages to an employee on Form W-2, Box 14, or on a separate statement, the employer must either furnish a W-2c, Corrected Wage and Tax Statement, or provide a corrected statement to the employee correcting the erroneous reporting.
The Form W-2c or corrected statement should be sent only to the employee and should not be filed with the Social Security Administration if the sole correction is related to the reporting of leave wages in box 14.
Form 1040 reporting instructions for self-employed individuals Self-employed individuals claiming a tax credit for a qualified sick leave equivalent amount or qualified family leave equivalent amount must report these qualified sick leave wages and qualified family leave wages on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, which is included with the 2021 federal income tax return. These taxpayers may have to reduce (but not below zero) any qualified sick leave or qualified family leave equivalent amounts by these qualified leave wages.
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