W-2 Reporting for FFCRA Wages and Social Security Tax Deferrals

As local government agencies are getting ready to issue W-2s for 2020, they should be aware of a new requirement: reporting Families First Coronavirus Response Act (FFCRA) wages. This blog will look at how to properly report FFCRA wages and associated issues.

Reporting FFCRA Leave Wages on W-2s

The Families First Coronavirus Response Act (FFCRA) offered employee paid sick leave and expanded family and medical leave.  

FFCRA wages are included in the gross amounts reported in boxes 1, 3, and 5 of the W-2; however, the Internal Revenue Service (IRS) has additionally required that FFCRA wages paid in 2020 be reported separately in Box 14 of the W-2 or on a separate statement for the employee. The reason the IRS is requiring separate FFCRA leave reporting is to allow those employees who are also self-employed to have the information necessary to properly claim qualified sick leave equivalent or qualified family leave equivalent credits under the FFCRA.

IRS Notice 2020-54 provides a full discussion of reporting FFCRA wages on the W-2. The notice includes sample language that can be used (by reporting agencies) as part of the Instructions for Employee under the instructions for Box 14 of the W-2, or in a separate statement sent to the employee. The model language reads:

Included in Box 14, if applicable, are amounts paid to you as qualified sick leave wages or qualified family leave wages under the Families First Coronavirus Response Act. Specifically, up to three types of paid qualified sick leave wages or qualified family leave wages are reported in Box 14:

• Sick leave wages subject to the $511 per day limit because of care you required;

• Sick leave wages subject to the $200 per day limit because of care you provided to another; and

• Emergency family leave wages.

If you have self-employment income in addition to wages paid by your employer, and you intend to claim any qualified sick leave or qualified family leave equivalent credits, you must report the qualified sick leave or qualified family leave wages on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, included in your income tax return and reduce (but not below zero) any qualified sick leave or qualified family leave equivalent credits by the amount of these qualified leave wages. If you have self-employment income, you should refer to the instructions for your individual income tax return for more information.

Reporting of Employee Social Security Tax Deferrals

On August 8, 2020, a presidential memorandum was issued that allowed employers the option to defer the employee portion of Social Security tax from September 1, 2020 through December 31, 2020, for eligible employees who earn less than $4,000 per bi-weekly pay period (see our blog President’s Memorandum on Deferring Payroll Tax Obligations for more).

The IRS has released special reporting instructions for employers whose employees availed themselves of this deferral option. The special reporting instructions read in part:

If you deferred the employee portion of Social Security tax under Notice 2020-65, when reporting total Social Security wages paid to an employee on Form W-2, Wage and Tax Statement, include any wages for which you deferred withholding and payment of employee Social Security tax in Box 3 (Social security wages) and/or Box 7 (Social security tips). However, do not include in Box 4 (Social security tax withheld) any amount of deferred employee Social Security tax that has not been withheld.

The Social Security taxes that were deferred by the employee must be withheld and remitted to the Social Security Administration (SSA) during the first quarter of 2021. The Social Security taxes will then need to be reported in Box 4 (Social security tax withheld) on a Form W-2c, Corrected Wage and Tax Statement for tax year 2020. Employers will need to enter tax year 2020 in Box C and adjust the amount previously reported in Box 4 (Social security tax withheld) of the Form W-2 to include the deferred amounts that were withheld in 2021. All Form W-2cs should be filed with SSA, along with Form W-3c and the Transmittal of Corrected Wage and Tax Statements, as soon as possible after you have finished withholding the deferred amounts. (The IRS special notice advises that further information will be released in the 2021 General Instructions for Forms W-2 and W-3, which is set to be published in January 2021).

Voluntary Extension of FFCRA Leave

The Consolidated Appropriations Act (Act) that was signed into law on December 27, 2020, extended the time in which employees could use FFCRA leave benefits. The Act allows employees who have not exhausted all of their FFCRA leave to use up any remaining leave. Importantly, the extension does not create a new bucket of leave for employees, it merely allows for use of any remaining FFCRA leave by March 31, 2021. Employers are not required to allow use of remaining FFCRA leave after Dec 31, 2020, but they may do so voluntarily.

Contact Us with Additional Questions

While MRSC does not have an expert on federal tax reporting, please feel free to reach out to us for general questions on W-2s. Email me at elowell@mrsc.org, use our online Ask MRSC form, or call us at (206) 625-1300 or (800) 933-6772.