COVID-19 Tax Credit

Hannah asked 4 months ago
If our employees are out because their children are home from school due to COVID-19, I know I am mandated to provide them with additional sick leave at 2/3 their salary starting April 3. How and where do I report that information in order to retain the tax credit for doing so?
1 Answer
Riia O’Donnell replied 3 months ago
First, to qualify for the tax credit, employees must provide you with a written statement attesting they cannot work and are eligible for the sick/family leave pay and credits with the following information:

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

Once that's established, you'll want to keep meticulous records of all the amounts you've paid, including wages, qualified health care expenses and your portion of Medicare taxes paid. When you file your quarterly tax return, typically Form 941 but you may use another depending on your business, you'll report those payments on the form. If there is an overpayment (that is you've paid more in leave payments than your actual tax burden) you'll get a refund. If you haven't, the amount of quarterly taxes due will be reduced. The IRS has updated Form 941 with instructions on how to request the credit. Don't use the old forms - the new one can be found here:
https://www.irs.gov/pub/irs-pdf/i941.pdf

More details on the credit are available through the IRS COVID-19 web page of FAQs here:
https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs#how_to_claim

If you anticipate you won't be able to manage the payments, you can request an advance on the tax credits, by submitting IRS Form 7200. Find it here:
https://www.irs.gov/pub/irs-pdf/f7200.pdf