FFCRA Tax Credits: What Practice Owners Need to Know

The Families First Coronavirus Response Act (FFCRA) requires certain employers to provide qualifying employees with additional paid time off. To cover these extra wages, your practice can claim FFCRA tax credits.

The purpose of this article is to help practice owners understand four things:

1. What are FFCRA tax credits?
2. Who qualifies?
3. How do you claim them?
4. What must you do to substantiate your claim?

Do you have employees away from the practice due to COVID-19?

Keep reading to learn what you need to do.

What are FFCRA tax credits?

According to the IRS [1]: 

“The FFCRA provides businesses with tax credits to cover certain costs of providing employees with required paid sick leave and expanded family and medical leave for reasons related to COVID-19, from April 1, 2020, through December 31, 2020.”

These refundable credits match dollar-for-dollar the wages you pay employees who take a leave of absence under FFCRA. 

Who qualifies for the FFCRA tax credits?

Businesses qualify for the FFCRA tax credits if they:

1. Have fewer than 500 employees; and
2. Were required under the FFCRA to pay “qualified sick leave wages” and/or “qualified family leave wages”

Not sure when an employee is eligible for FFCRA paid time off?

Let’s quickly revisit the FFCRA rules for “sick leave” and “family leave.”

FFCRA Paid Sick Leave

Employees may qualify for FFCRA paid sick leave if any of these reasons related to COVID-19 apply:

1. Employee is subject to a government quarantine or isolation order for COVID-19;
2. Employee has been advised by a health care provider to self-quarantine for COVID-19;
3. Employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis;
4. Employee is caring for an individual subject to a COVID-19 quarantine or isolation order; or 
5. Employee is caring for their child because the child’s school or place of care has been closed, or the child care provider for the child is unavailable, due to COVID-19 reasons.
6. Employee is experiencing substantially similar conditions as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.

How long is paid sick leave?

The equivalent of a two-week period.

Full-time employees are entitled to 80 hours of paid sick leave. 

Part-time employees are entitled to an amount equal to the average amount of hours they work in a normal two-week period.

What are the wages for paid sick leave?

Wages that you must pay under the FFCRA paid sick leave vary depending on the qualifying reason.

Reasons #1-3: Employees are entitled to pay at either their regular rate or the applicable minimum wage, whichever is higher, up to $511 per day and $5,110 in the aggregate (over a 2-week period).

Reasons #4-6: Employees are entitled to pay at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $2,000 in the aggregate (over a 2-week period).

FFCRA Paid Expanded Family and Medical Leave

The FFCRA paid expanded family and medical leave benefit extends the amount of paid time off for employees who qualify for Reason #5 and have been employed by the practice for at least 30 calendar days.

5. Employee is caring for their child because the child’s school or place of care has been closed, or the child care provider for the child is unavailable, due to COVID-19 reasons.

How long is paid family leave?

Employees may take an additional 10 weeks of paid time off to care for a child under these circumstances related to COVID-19.

What are the wages for paid family leave?

The first 10 days (2 weeks) are unpaid. This is because they would qualify for payment under FFCRA paid sick leave.

After the first 10 days, employees are entitled to pay equal to 2/3 of the employee’s regular pay, up to $200 per day and $10,000 in the aggregate (over a 10-week period).

Exceptions for Small Businesses and Healthcare Workers

Most small businesses must pay qualifying employees FFCRA paid sick or extended family and medical leave. And when they do, they become eligible to claim the matching tax credit. 

However, there are a couple of exceptions.

According to the Department of Labor [2]:

“Small businesses with fewer than 50 employees may qualify for exemption from the requirement to provide leave due to school closings or child care unavailability if the leave requirements would jeopardize the viability of the business as a going concern.”

The other exemption applies to healthcare workers and emergency responders. The definitions for such are provided by the DOL.

• Who is a “health care provider” who may be excluded by their employer from paid sick leave and/or expanded family and medical leave?
• Who is an emergency responder?

I would advise that you speak to a labor attorney before you decide whether or not your employees fall under any of these exemptions.

How do I claim FFCRA tax credits?

FFCRA tax credits are claimed by reporting your total qualified leave wages for each quarter on Form 941.

In anticipation of receiving the credit, employers can cover the amount of qualified leave wages in two ways [3]:

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 of the credit that is not covered by accessing the federal employment tax deposits, by filing Form 7200

In other words, the employer may retain the amount of the credit from federal taxes that would otherwise be due (as opposed to depositing them). 

These federal taxes include:

• Employer’s portion of Social Security and Medicare taxes
• Employee’s portion of any FICA and Medicare taxes withheld
• Federal income tax withholdings on wages paid to employees

Then, if the amount of the credit exceeds the amount of federal employment related taxes due, the employer may carry forward the excess credit to future periods, or apply for an advance from the IRS by filing the newly created Form 7200.

What information do you need to substantiate FFCRA tax credits?

It is your responsibility as the practice owner to collect and retain specific documentation to substantiate the FFCRA tax credits. These records should be maintained for at least four years.

Employee Information

At minimum, employers must have a written request from the employee that provides [4]:

1. The employee’s name;
2. The date or dates for which leave is requested;
3. A statement of the COVID-19 related reason the employee is requesting leave and written support for such reason; and
4. A statement that the employee is unable to work, including by means of telework, for such reason.

Reason #1 or #2 — Additional Info

In the case of a leave request based on a quarantine order or self-quarantine advice, the statement from the employee should include:

1. The name of the government entity ordering quarantine; or
2. The name of the healthcare professional advising self-quarantine

Reason #5 — Additional Info

Lastly, in the case of a leave request based on a school closing or child care provider unavailability, the statement from the employee should include:

1. The name and age of the child/ren to be cared for;
2. The name of the school that has closed or place of child care that is unavailable; and
3. A representation that no other person will be providing care for the child during the period for which the employee is receiving family medical leave

Employer Records

In addition to the information from the employee listed above, the IRS requires employers to maintain the following to substantiate the FFCRA tax credits [4].

1. Documentation to show how the employer determined the amount of qualified sick and family leave wages paid to employees that are eligible for the credit, including records of work, telework and qualified sick leave and qualified family leave.
2. Documentation to show how the employer determined the amount of qualified health plan expenses that the employer allocated to wages. See FAQ 31 (“Determining the Amount of Allocable Qualified Health Plan Expenses“) for methods to compute this allocation.
3. Copies of any completed Forms 7200, Advance of Employer Credits Due To COVID-19 PDF, that the employer submitted to the IRS.
4. Copies of the completed Forms 941, Employer’s Quarterly Federal Tax Return PDF, that the employer submitted to the IRS (or, for employers that use third party payers to meet their employment tax obligations, records of information provided to the third party payer regarding the employer’s entitlement to the credit claimed on Form 941).

Conclusion

I hope this article helped explain the FFCRA tax credits.

As a practice owner, it’s important to understand how these tax credits work and what information is required to substantiate them.

If you still have questions, the IRS and DOL both have many helpful resources available through their websites. Sources used for this article are cited below. 

Finally, if you’re a client of ours, we have provided you with forms to help with the substantiation process here.

And if you’re not a client of ours, I recommend that you partner with a healthcare business consultant who can help you understand and navigate the new rules and regulations brought forth by COVID-19.

Sources

1. COVID-19-Related Tax Credits: Basic FAQs
2. Families First Coronavirus Response Act: Employee Paid Leave Rights
3. How to Claim the Credits
4. How Should an Employer Substantiate Eligibility for Tax Credits for Qualified Leave Wages?