How to Report COVID-19 Employee Emergency Leave

If your business or nonprofit used the fully refundable tax credits to cover the cost of COVID-19-related emergency paid sick leave (EPSL) or expanded family and medical leave (EFML) for employees, there are new reporting requirements for W-2 reporting for 2021.

For an employee to have qualified for EPSL, they had to be unable to work or telework due to specific COVID-19-related situations. For an employee to have qualified for EFML, they had to be unable to work or telework to care for a child if the child's school or care provider was closed or unavailable due to COVID-19.

In the fall of 2021, the IRS issued IRS Notice 2021-53, which updated Form W-2 reporting requirements regarding EPSL and EFML wages paid in 2021 under the Families First Coronavirus Response Act (FFCRA) — amended by the COVID-Related Tax Relief Act of 2020 and the American Rescue Plan Act of 2021.

What Reporting Period Does This Cover?

IRS Notice 2021-53 covers employee EPSL or EFML granted from January 1, 2021 to September 30, 2021. The credit expired under the American Rescue Plan Act of 2021 on September 30, 2021.

The IRS issued separate guidance last year in IRS Notice 2020-54 regarding reporting qualified leave wages for leave provided from April 1, 2020, through December 31, 2020.

Reporting Instructions Form W-2

Report qualified 2021 EPSL and EFML in box 1 of Form W-2. Social security or Medicare wages must also be included in box 3 (up to the social security wage base) and box 5. In box 14 or a separate statement, employers must also report the amounts of qualified leave wages to the employee. These amounts need to be separated and labeled as EPSL or EFML, with the different limitation amounts applicable within specified date ranges in 2021.

The IRS said this additional Form W-2 reporting requirement is necessary so employees who are also self-employed can properly claim their qualified EPSL and EFML equivalent credits. Only eligible employers who claim tax credits under the FFCRA are required to report qualified EPSL and EFML wages to their employees.

Reporting Instructions for Form W-2, Box 14 with Optional Language

As part of the instructions for employees under box 14 for Form W-2, or in a separate statement sent to the employee, the employer might need to provide additional information as outlined below. Include the amounts paid as qualified EPSL and EFML under the FFCRA and/or sections 3131 and 3132 of the Internal Revenue Code in box 14, if applicable.

Up to six types of paid qualified EPSL and EFML wages may be reported in box 14:

• Sick leave wages subject to the $511 per day limit paid for leave taken after December 31, 2020, and before April 1, 2021, because of care required.
• Sick leave wages subject to the $200 per day limit paid for leave taken after December 31, 2020, and before April 1, 2021, because of care provided to another.
• Emergency family leave wages paid for leave taken after December 31, 2020, and before April 1, 2021.
• Sick leave wages subject to the $511 per day limit paid for leave taken after March 31, 2021, and before October 1, 2021, because of care required.
• Sick leave wages subject to the $200 per day limit paid for leave taken after March 31, 2021, and before October 1, 2021, because of care provided to another.
• Emergency family leave wages paid for leave taken after March 31, 2021, and before October 1, 2021.

Utilizing the Tax Credit

The FFCRA provided eligible employers with fully refundable tax credits to cover the cost of COVID-19 related EPSL and EFML. Eligible employers report their total qualified leave wages for each calendar quarter on their federal employment tax returns, usually Form 941, Employer's Quarterly Federal Tax Return. Employers also report any qualified wages for which they are entitled to an Employee Retention Credit under the CARES Act on Form 941.

In expectation of receiving the credit, eligible employers can cover the amount of qualified leave wages by:

1. Accessing federal employment taxes, including withheld taxes that would otherwise be required to be deposited with the IRS, and
2. Requesting an advance of the credit from the IRS for the amount not covered by accessing the federal employment tax deposits, by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. Prior to retaining deposits in anticipation of the credit, eligible employers can defer the deposit and payment of the employer's share of social security tax under section 2302 of the CARES Act.

Self-Employed Individuals Reporting Instructions on Form 1040

Self-employed individuals claiming a tax credit for a qualified EPSL and EFML must report these qualified 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 EPSL and EFML equivalent amounts by these qualified leave wages.

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