With tax season upon us, the Internal Revenue Service updated its frequently asked questions (FAQs) on tax credits for paid leave under the Families First Coronavirus Response Act (FFCRA) for leave prior to April 1, 2021.
Initially, the FFCRA qualified covered employers for dollar-to-dollar tax credits for amounts paid to employees who took leave for qualifying reasons. The credits also covered amounts paid or incurred to maintain health insurance coverage. The tax credit was amended and extended by the American Rescue Plan Act of 2021.
Two new FAQs were added March 3, 2022. They are:
This FAQ clarifies if an eligible employer that claims the tax credits for qualified leave wages paid after Dec. 31, 2021, for leave taken by an employee in 2020 or 2021 required to give them a Form W-2c to correct the amount of sick leave and family leave wages reported in Box 14 of the employee’s 2020 and/or 2021 Form W-2?
Answer: Yes. In this case the employer must give the employee a Form W-2c (Corrected Wage and Tax Statement), reporting the corrected amounts of sick leave and family leave wages, which must include the qualified leave wages paid after Dec. 31, 2021, in Box 14. OR the employer must provide a corrected statement to the employee correcting the prior reporting.
If the leave wages are paid after Dec. 31, 2021, but the leave was taken in 2020, the employer must give the employee a Form W-2c (or the corrected statement) that corrects the leave wage amount reported in Box 14 (or in a separate statement) of the employee’s 2020 Form W-2, Wage and Tax Statement.
If they were paid after Dec. 31, 2021 for leave taken in 2021, the employer must give the employee a Form W-2c (or the corrected statement) to the employee that corrects leave wage amounts reported in Box 14 (or in a separate statement) of the employee’s 2021 Form W-2.
Don’t file a Form W-2c with the SSA just to correct Box 14.
Should self-employed people, who claimed the self-employed equivalent leave credit and get a Form W-2c from an employer to report corrected qualified sick and/or family leave wages received for the period beginning April 1, 2020, and ending March 31, 2021, file an amended tax return?
Answer: The IRS says, it depends.
If a self-employed person in the above scenario gets a Form W-2c reporting corrected amounts of sick and/or family leave wages in Box 14 for this the time between April 1, 2020 and March 31, 2021, they’ll need to recalculate the credits on Form 7202 (Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals) with the corrected amounts. They also must file a Form 1040-X (Amended U.S. Individual Income Tax Return) if the amount of the leave credits changes.
If the person gets a Form W-2c for reporting corrected waged paid during the 2020 tax year and the equivalent leave credit for 2020, they must recalculate the credit on the 2020 Form 7202. If the equivalent leave credit changes, then they must file Form 1040-X for 2020 with the corrected amount on the Form 7202.
Another scenario would be the person gets a Form W-2c for reporting corrected waged paid during the 202 tax year and claimed the and the equivalent leave credit for the period beginning Jan. 1 2021 and ending March 31, 2021, from parts I and /or II of a 2021 Form 7202, they must recalculate the credit on Form 7202. However, if the leave credit changed from the claimed amount on their 2021 Form 1040 (U.S. Individual Income Tax Return) they must file Form 1040-X for 2021 with the corrected amounts from Form 7202.
And finally, if they get Form W-2c reporting corrected wages paid from Jan. 1, 2021 through March 31, 2021, and claim the equivalent leave credit for this time, they need to recalculate the credit on the 2021 Form 7202. However, if the amount of the credit changes, they must file Form 1040-X for 2021 with the altered Form 7202 amounts.
As a reminder, employees were permitted to take Emergency Paid Sick Leave Act (EPSLA) if they were:
- subject to a federal, state, or local quarantine or isolation order related to COVID-19
- advised by a healthcare provider to self-quarantine due to COVID-19 related concerns
- seeking a diagnosis due to COVID-19 symptoms, seeking or awaiting COVID-19 test results due to exposure, or requested by their employer to get a test or diagnosis; or obtaining COVID-19 immunization or recovering from any injury, disability, illness, or condition related to such immunization
- caring for an individual subject to a federal, state, or local quarantine or isolation order related to COVID-19 or advised by a healthcare provider to self-quarantine due to COVID-19 related concerns
- caring for a child because the child’s school or place of care was closed, or childcare provider was unavailable, due to COVID-19 related reasons, and
- experiencing other conditions similar to COVID-19 (identified by the Secretary of Health and Human Services).