IRS Issues Guidance for Reporting Paid Sick Leave in 2021

COVID-19 may not have been unexpected in 2021, but it continued to shape the year for almost everyone. To incentivize employers to offer paid time off for affected employees, legislation in March 2020 provided tax credits for paid sick and family leave. In the first six to eight months, it’s estimated that six to eight million U.S. workers took advantage of the expanded leave if they were unable to work or telework. Now, the IRS has issued detailed reporting guidance for employers that offered paid sick, and family leave this year. Since the period for offering paid leave is coming to an end on September 30, 2021, Atlanta businesses have time to calculate accurate reporting data and begin preparing W-2s to be issued in January of next year. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

Qualified Wages

The Families First Coronavirus Response Act (FFCRA) first authorized paid leave for COVID-19 in the form of fully refundable tax credits, which offset the employer’s share of Social Security taxes. Generally, employers with less than 500 employees were required to offer paid leave, though there were exceptions for small employers with less than 50 full-time equivalent employees.

Paid family leave credits were extended and expanded twice, first in December 2020 and again with the American Rescue Plan Act in March 2021. The latest IRS guidance deals only with paid leave for the period between January 1 and September 30, 2021. For previous IRS guidance on 2020 paid leave, visit the IRS website here.

Qualified wages must be reported for the following situations, including:

1. The employee either tests positive for COVID-19 or has to self-quarantine due to symptoms or exposure. This includes awaiting test results from a doctor.
2. The employee must stay home to care for a child or other family member who has either tested positive for COVID-19 or has symptoms.
3. The employee must take care of his or her children due to their school or daycare facility being closed because of COVID-19.

In each of these cases, the amount of qualified wages varies as follows.

• Up to ten days or 80 hours at the regular pay rate or the federal, state, or local minimum wage, whichever is higher. Limited to $511 per day or $5,110 in total.
• Up to ten days or 80 hours at the regular pay rate or the federal, state, or local minimum wage, whichever is higher. Limited to $200 per day or $2,000 in total.
• Up to ten weeks of qualifying leave at two-thirds of the employee’s regular pay rate. Limited to $200 per day or $10,000 in total.

Notably, employees have been eligible for paid leave following vaccine inoculation between April 1 and September 30, 2021. In those cases, the amount of qualified wages is limited to $200 per day or $2,000 in total. In each quarter, employers have reported eligible wages on Form 941 as part of their payroll tax filing or requested an advance of the credit using Form 7200.

How to Report Qualified Wages

There are a few places on the Form W-2 that employers must report qualified wages, depending on the type paid. First, all qualified wages should be reported in box 1 on the W-2. Social Security wages should be reported in box 3 and Medicare wages should be reported in box 5.

Next, employers must report qualified wages to employees on either box 14 of a 2021 Form W-2, Wage and Tax Statement, or on a separate statement. The IRS guidance, Notice 2021-53, also contains information for self-employed individuals. Employers must also distinguish qualified wages for sick leave or family leave taken between January 1 and March 31, 2021, and April 1 through September 30, 2021.

Even if an employee took paid leave for COVID-19-related reasons, if the employer did not claim the tax credits, no additional reporting is necessary. Also note that many states have different requirements for paid sick leave under COVID-19 and employers will need to be aware of the reporting guidance for states other than Georgia.  

Contact Us

Many Atlanta area businesses offered paid sick and family leave time for employees, and their families, impacted by COVID-19. To take advantage of the tax credit, it is important to ensure the proper reporting requirements have been met. If you have questions about the information outlined above or need assistance with a tax or accounting need, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.