How Does an Employer Substantiate Eligibility for COVID-related Sick and Family Leave Credits?

Section 286 of the COVID-related Tax Relief Act of 2020 (passed by Congress on December 21, 2020 but not yet signed into law by the President) extended and expanded paid sick and family leave credits that were originally put in place as part of the Families First Coronavirus Response Act passed at the beginning of the pandemic. All of a sudden, these credits are a lot more interesting than they were originally. These credits can be worth as much as $5,110 per employee.

The IRS revised the FAQ’s (How Should an Employer Substantiate Eligibility for Tax Credits for Qualified Leave Wages? | Internal Revenue Service (irs.gov) on this topic on their website on November 25, 2020.

To summarize, the employer should have a written request from the employee for leave that includes:

  • The employee’s name,

  • The dates for the leave,

  • The COVID-19 related reason the employee is requesting leave and written support for this reason; and

  • A statement that the employee is unable to work, including by means of telework, for such reason.

Leave requests based on a quarantine order or self-quarantine advice should provide the name of the government entity ordering quarantine or the name of the health care professional advising self-quarantine.

The employer should maintain documentation showing how the employer determined the amount of qualified sick and family leave wages paid including records of work, telework and qualified sick leave and qualified family leave.

The IRS has not yet addressed the documentation requirements for self-employed individuals claiming the expanded credits authorized under the COVID-related Tax Relief Act of 2020. This will be interesting given the retroactivity of this credit. Most self-employed individuals probably didn’t give themselves a written leave request and I don’t expect the IRS to require one. Rest assured, the IRS will want self employed individuals claiming these credits to have documentation for the dates of leave, the COVID related reason for taking the leave, and a written statement that they are unable to work. Many self employed individuals will qualify for the maximum credit of $5,110 if they meet the documentation requirements.

  • Mark S Gleason CPA

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