Some employers have been surprised by the new requirement to report wages paid for leave taken under the Families First Coronavirus Response Act (FFCRA) on employees’ W-2 forms. But W-2s, which must be provided to employees by Jan. 31, can be corrected if they’ve already been issued.
The reporting instructions were contained in IRS Notice 2020-54, issued last July, but not detailed in the Form W-2 instructions, said Robert Delgado, principal-in-charge of compensation and benefits with KPMG. Delgado, who is in San Diego, said that it wasn’t in the instructions, “likely due to the short-term nature of the program.”
Some small employers in particular have been caught off guard by this requirement, said Carolyn Pellegrini, an attorney with Saul Ewing Arnstein & Lehr in Philadelphia.
Guidance on Reporting Wages Paid Under the FFCRA
“W-2s serve the important function of giving an employee a record of what and how they were paid, as well as what federal and state taxes were withheld by their employer on their behalf,” said Jim Paretti, an attorney with Littler in Washington, D.C. “This, in turn, allows the employee to accurately determine whether they owe taxes to the federal government or to a state or locality, or whether they are entitled to a refund when taxes were overpaid.”
The IRS has issued specific guidance on how employers are expected to report wages paid for emergency paid sick leave and emergency paid Family and Medical Leave Act time off under the FFCRA. Pay for either type of FFCRA wages should be reported separately from regular wages, on Box 14 of the W-2, or on a separate statement provided concurrently with the regular W-2, according to this guidance.
There is some disagreement whether employers who are not claiming the FFCRA tax credit for providing sick leave wages have to report the wages on employees’ W-2s.
“Employers should do this irrespective of whether [they are] being reimbursed for these wages by way of the FFCRA tax credit,” Paretti said.
Delgado agreed, saying, “The reporting appears [to be] required to the extent the employer is providing a mandated benefit under the FFCRA, irrespective of whether the employer is properly claiming the related credit.”
But Pete Isberg, vice president of government relations for ADP in Roseland, N.J., disagreed, saying, “If employers paid sick and family leave that complies with all aspects of the FFCRA but didn’t take the tax credit, they simply paid regular wages. There would be no need to comply with the FFCRA W-2 reporting obligations.”
Delgado said that reporting is as follows:
Qualified sick leave wages: Qualified sick leave wages must be reported in boxes 1, 3 (up to the Social Security wage base of $137,700 for 2020) and 5 of Form W-2. Those wages must also be separately reported, either in Box 14 or on a separate statement, and labeled “sick leave wages subject to the $511 per day limit” or similar language. Sick leave used for caring for another individual must be similarly reported and labeled “sick leave to $200 per day limit” or similar language.
Qualified family leave wages: Qualified family leave wages must be reported in boxes 1, 3 (up to the Social Security wage base of $137,700 for 2020) and 5 of Form W-2. Family leave must also be separately reported, either in box 14 or on a separate statement. The employer must label this amount “emergency family leave wages” or use similar language.
If the reporting is in a separate statement, it must be included with the W-2 sent to the employee and provided in the same format, noted Mike Trabold, director of compliance risk with Paychex in Rochester, N.Y. “So employees receiving an electronic Form W-2 must receive the separate statement electronically in the same manner and at the same time as the Form W-2.”
If W-2s have been sent out without FFCRA wages reflected on them accurately, “employers should act quickly to correct the data in their system and issue amended W-2s,” said Clark Sells, a group product manager at Ascentis Human Capital Management Software in Minneapolis.
There’s a difference between an “amended original” and a “corrected W-2” or “W-2C,” he said. Amended original means that the W-2 hasn’t yet been filed with the federal government, whereas a W-2C means the employer has filed with the government, “and a different, more tedious process of issuing the ‘corrected W-2’ form must be followed.”
Trabold noted that employers file W-2s with the Social Security Administration (SSA) to report Federal Insurance Contributions Act (FICA) taxes. The SSA then reports relevant data to the IRS.
“If an error is discovered on Form W-2 after it has been issued to the employee but before it is filed with the SSA, an employer should check the ‘Void’ box on Copy A and prepare a new W-2 to file with the SSA,” he said. “As well, they should indicate ‘CORRECTED’ on the top of the employee’s new copies and furnish to the employee.”
But if an error is discovered on Form W-2 after it has been filed with the SSA, an employer should prepare Forms W-2C (Corrected Wage and Tax Statement) and W-3C (Transmittal of Corrected Wage and Tax Statement) to file with the SSA, Trabold said. “Provide the employee with their applicable copies of Form W-2C.”
[SHRM members-only HR Form: 2020 FFCRA Supplemental W-2 Reporting Information]
In addition to correcting W-2s, employers may want to be aware of some myths surrounding FFCRA leave.
“There are employees who believe that the wages paid to them for time they took FFCRA leave are not taxable,” Pellegrini said. “This is not accurate. The wages paid for FFCRA leave are taxable as regular wages.”
Another common myth is that qualified family leave wages and qualified sick leave wages are excluded from FICA wages for purposes of Social Security taxes. “It’s true that they are excluded for the employer portion of Social Security tax; however, they are included in wages for purposes of employee Social Security tax, as well as the employer and employee shares of Medicare taxes,” Delgado said.