Member Article

Key Points

• Employers that claimed a tax credit for qualified COVID-related leave paid to employees in 2021 must report the amount of leave paid in Box 14 of the employee's 2021 Form W-2 or on a separate statement.
• The reporting requirement is new for 2021 for governmental employers, because those employers were not eligible for a tax credit for COVID-related leave paid in 2020.

Employers that claimed a tax credit for qualified COVID-related sick and family leave wages paid to employees from April 1, 2021 through September 30, 2021 under the American Rescue Plan Act of 2021 ("ARPA") must report the amounts of that leave paid to employees. Under IRS guidance, the amounts of leave paid may be reported in Box 14 on Form W-2, or on a separate statement that is provided to employees along with their Form W-2.

Tax Credits for COVID-Related Leave Paid in 2021 under ARPA

Certain employers were required to provided COVID-related sick and family leave in 2020 under the Families First Coronavirus Response Act (FFCRA). While private sector employers may have been entitled to tax credits to cover the cost of the leave required to be paid under FFCRA, governmental employers were not eligible for those tax credits.

Although FFCRA-required leave expired in 2020, under ARPA, certain employers—including governmental employers—that voluntarily provided FFCRA-life leave in 2021 were eligible for a tax credit for wages paid to employees for leave taken between April 1 and September 30, 2021. This tax credit also was available with respect to supplemental paid sick leave required under California law (SB 95), as described in our Client Alert, that was taken between April 1 and September 30, 2021.

Form W-2 Reporting Requirement for COVID-Related Leave, If Tax Credits Were Taken

Employers that took a tax credit for FFCRA leave paid in 2020 were required to report the leave amounts separately on employees’ Forms W-2, or on a separate statement. The separate reporting requirement did not apply to governmental employers for 2020, because those employers were not eligible for a tax credit for FFCRA-required leave.

Under ARPA, governmental employers were eligible for the tax credit for qualified COVID-related leave paid in 2021. This means that the Form W-2 reporting requirement also applies to governmental employers who claimed a tax credit for qualified sick or family leave paid between April 1 and September 30, 2021.

Employers must report each type of qualified leave wages paid to an employee in Box 14 of Form W-2, or on a separate statement.

• For employers that provide paper W-2 forms, the separate statement must be included when the W-2 is mailed.
• If employees receive an electronic W-2, the separate statement must be provided in the same manner and at the same time as the W-2.

This reporting is required so that any self-employed individuals who received compensation from the employer in addition to their self-employment income will know the amount of qualified leave credit they may be able to properly claim on their tax filings for 2021.

Please note: If an employer did not claim a tax credit for qualified COVID-related leave paid in 2021, qualified leave wages do not need to be reported in Box 14 of Form W-2 or (or on a separate statement).

Three Types of Leave Must Be Separately Reported

IRS guidance explains that employers must separately report three different types of qualified leave wages in amounts that were claimed by the employer as a tax credit for each type. These should be labeled to indicate the applicable daily dollar limit and the purposes for which the leave could have been taken. IRS guidance also includes model language employers may use to explain Box 14 reporting to employees.

If you have questions, please reach out to your contact in the Hanson Bridgett Employee Benefits Group.