IRS offers insight on COVID-19 related paid leave tax credits

The IRS this month released new FAQs tackling a host of issues relating to tax credits for eligible employers who voluntarily provide paid employee leave under the Families First Coronavirus Response Act (FFCRA). That paid leave expired Dec. 31, 2020, but subsequent legislation—most recently the American Rescue Plan signed in March —extended and enhanced the tax credits available for employers that choose to provide FFCRA leave through Sept. 30, 2021.

The IRS is offering answers to more than 120 new FAQs about the credits with responses divided into 16 subtopics. The federal tax agency’s answers provide information on how employers may claim the tax credits, such as how to file for and compute the applicable credit amounts, and how to receive advance payments for and refunds of the credits. The FAQs also clarify that:

• Daily and aggregate wage limits do not include health plan expenses or the employer’s share of Social Security and Medicaid taxes.

• Qualified leave wages do not include federal taxes on the wages.

• Even if the employer did not initially pay the employee when the employee became eligible for qualified leave wages, the credit may still apply for wages paid for leave taken between April and September of 2021.

• Employers must collect and maintain specific information from employees (and may require more than that specified) to verify eligibility for the credits, and records must be kept for six years.

The FAQs also provide details about the last day an employer may file for advance payment of the credit.

The tax credits apply to employers with fewer than 500 employees. Eligible wages are subject to daily and total limits.