IRS Issues Guidance for 2021 Paid Sick Leave Reporting Requirements

The IRS has issued Notice 2021-53, I.R.B. 2021-39 to provide employers with guidance for wage reporting of employees who used paid sick leave entitlements as mandated by the FFCRA and ARPA in 2021. As a reminder, private sector employers may claim tax credits to offset at least some of the cost of these paid sick leave requirements; public sector employers are not eligible for such tax relief. Note: this does not address paid sick leave requirements under any state law, such as Arizona’s Fair Wages and Healthy Families Act or Colorado’s Healthy Families and Workplaces Act (HFWA). 

The following article is a reprint from the CCH Daily HR News, provided to Employers Council members as a benefit of membership. For any questions related to member benefits such as CCH, contact us for help. 

The IRS has issued guidance to employers about reporting the amount of qualified sick and family leave wages paid to employees for leave taken in 2021 on Form W-2, Wage and Tax Statement. Further, the notice provides guidance under recent legislation, including: the Families First Coronavirus Response Act (FFCRA), as amended by the COVID-Related Tax Relief Act of 2020 (Division N of P.L. 116-260) and the American Rescue Plan Act of 2021 (P.L. 117-2). Employers are required to report these amounts to employees either on Form W-2, Box 14, or in a separate statement provided with the Form W-2. The wage amount that the notice requires employers to report on Form W-2 will provide employees who are also self-employed with the information necessary to determine the amount of any sick and family leave equivalent credits they may claim in their self-employed capacities.  

Reporting requirements. The guidance requires eligible employers to report to employees the amount of qualified sick leave wages and qualified family leave wages paid to the employees under (i) sections 7001 or 7003 of the Families First Act for leave provided during the period beginning January 1, 2021, through March 31, 2021, and (ii) Code Secs. 3131 and 3132 for leave provided during the period beginning April 1, 2021, through September 30, 2021. Moreover, eligible employers have separate reporting requirements for (i) leave provided to employees during the period beginning January 1, 2021, through March 31, 2021, under the Families First Act; and (ii) leave provided to employees during the period beginning April 1, 2021, through September 30, 2021, under Code Secs. 3131 and 3132. 

Specific reporting instructions. Qualified leave wages paid in 2021 under the Families First Act and Code Secs. 3131 and 3132 are to be reported in Box 1 of Form W-2. To the extent that qualified leave wages are social security wages or Medicare wages, they must also be included in Box 3 (up to the Social Security wage base) and Box 5, respectively. 

In addition to the regular reporting requirements, employers must report the following types and amounts of the wages that were paid, with each amount separately reported either in Box 14 of Form W-2 or on a separate statement to the employee: 

  • the total amount of qualified sick leave wages paid for reasons described in section 5102(a) of the Emergency Paid Sick Leave Act (EPSLA) with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021; 
  • the total amount of qualified family leave wages paid to the employee under the Emergency Family and Medical Leave Expansion Act (EFMLEA) with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021; 
  • the total amount of qualified sick leave wages paid for reasons described in section 5102(a) of the EPSLA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021; 
  • the total amount of qualified family leave wages paid to the employee under the EFMLEA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021. 

Model language for employee instructions. As part of the Instructions for Employee, under the instructions for Box 14, for the Forms W-2, or in a separate statement sent to the employee, the employer may provide additional information about qualified sick leave wages and qualified family leave wages and explain that these wages may limit the amount of the qualified sick leave equivalent or qualified family leave equivalent credits to which the employee may be entitled with respect to any self-employment income. The guidance provides model language for employee instructions. 

Self-employment tax reporting. If a taxpayer has self-employment income in addition to wages paid by an employer, and they intend to claim any qualified sick leave or qualified family leave equivalent credits, they must report the qualified sick leave or qualified family leave wages on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, included with their income tax return. 

SOURCE: CCH Daily News Alert, included in Employers Council membership, issued September 10, 2021. 

IRS source: https://www.irs.gov/pub/irs-drop/n-21-53.pdf