IRS releases W-2 reporting requirements for qualified leave in 2021

The IRS recently issued Notice 2021-53, providing guidance on reporting qualified leave and sick wages to employees. Qualified sick and leave wages are those that are defined by the Families First Coronavirus Response Act (FFCRA), which was amended by the COVID-Related Tax Relief Act of 2020 and the American Rescue Plan Act of 2021.

How are wages reported?

According to the notice, the wages must be reported to employees with their W-2. Employers can choose to place the wages either on Form W-2, Box 14, or by providing documentation delivered with the Form W-2. The notice provides sample language employers may use if providing a separate statement.

The IRS also noted that self-employed individuals can determine what, if any, sick and family leave wages are qualified for tax credits. This is a follow-up to Notice 2020-54 released in 2020 regarding reporting of qualified sick and family leave wages paid in 2020.

What are qualified wages?

The FFCRA defines qualified wages as those paid for sick or family leave related to COVID-19.

Qualified wages can be paid to employees who are:

  • Subject to state, local, or federal quarantine.
  • Advised by a healthcare provider to self-quarantine.
  • Experiencing COVID-19 symptoms and seeking a medical diagnosis.
  • Caring for someone who is self-quarantining in accordance to bullets 1 and 2 above.
  • Experiencing a substantially similar condition as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.
  • Caring for a child or dependent whose school or place of care is closed or unavailable related to COVID-19.

What are the limits on wages paid?

The FFCRA allows for full-time employees to be paid up to 80 hours (two weeks) worth of paid leave for the reasons mentioned above and for part-time employees to receive paid wages for up to two weeks equal to their normal weekly scheduled hours.

The paid leave is extended to equal up to 12 weeks of leave at their normally scheduled work period hours for those providing care because of COVID-related childcare and school closures.

Read more on the FFCRA requirements here, or contact our team of experts to discuss how to determine which leave hours are qualified and how to track them for Form W-2 reporting purposes.