Under the sick pay provisions enacted as part of the Families First Coronavirus Relief Act (FFCRA), a self-employed individual can qualify for a refundable tax credit if the self-employed individual meets the tests to qualify for such relief.  However, such relief is reduced to the extent the self-employed person receives qualified sick pay as an employee.

Obviously, the IRS will need information on such sick pay on a per employee basis in order to apply this rule.  As well, employees likely will also not have a record of such pay.  So in Notice 2020-54[1] the IRS has provided that employers will provide such information on Form W-2 for 2020.

The Notice provides:

In order to provide self-employed individuals who also receive wages or compensation as employees with the information they need to properly claim any qualified sick leave equivalent or qualified family leave equivalent credits for which they are eligible, this notice requires employers to report to employees the amount of qualified sick leave wages and qualified family leave wages paid to the employees under sections 7001 or 7003 of the Families First Act, respectively.[2]

General Guidance

The employer must separately provide information to the employee regarding:

• Sick pay under Division E of the FFCRA (EPSLA) pursuant to Act §5102(a)(1), (2) or (3) of that division which are generally paid when COVID-19 directly impacts the employee in a manner described in the Act;

• Sick pay under EPLSA pursuant to Act §5102(a)(4), (5) or (6) of that division which are paid when COVID-19 impacts a member of the employee’s family in a manner described in the Act; and

• Qualified family leave wages under Division C of the FFCRA, named the Family and Medical Leave Expansion Act (EFMLEA) pursuant to Act §3102(b).[3]

The information will be provided either in Box 14 of the Form W-2 or in a separate statement.[4]

The self-employed individual will use this information as follows:

Self-employed individuals claiming qualified sick leave equivalent or qualified family leave equivalent credits must then report these qualified sick leave and qualified family leave wage amounts on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, included with their income tax returns, and reduce (but not below zero) any qualified sick leave or qualified family leave equivalent credits by the amount of these qualified leave wages.[5]

Reporting Qualified Sick Leave Wages

The Notice provides the following detailed information regarding what the employer is to report and how it is to be reported when qualified sick leave wages are paid:

In addition to including qualified sick leave wages in the amount of wages paid to the employee reported in Boxes 1, 3 (up to the social security wage base), and 5 of Form W-2 (or, in the case of compensation subject to the RRTA, in the amount of RRTA compensation paid to the employee reported in Boxes 1 and 14 of Form W-25), employers must report to the employee the following type and amount of the wages that were paid, with each amount separately reported either in Box 14 of Form W-2 or on a separate statement:

• the total amount of qualified sick leave wages paid for reasons described in paragraphs (1), (2), or (3) of section 5102(a) of the EPSLA; in labeling this amount, the employer must use the following, or similar, language: “sick leave wages subject to the $511 per day limit;” and

• the total amount of qualified sick leave wages paid for reasons described in paragraphs (4), (5), or (6) of section 5102(a) of the EPSLA; in labeling this amount, the employer must use the following or similar language: “sick leave wages subject to the $200 per day limit.”

If a separate statement is provided and the employee receives a paper Form W-2, then the statement must be included with the Form W-2 provided to the employee, and if the employee receives an electronic Form W-2, then the statement shall be provided in the same manner and at the same time as the Form W-2. [6]

Reporting Qualified Family Leave Wages

Similar rules apply to reporting qualified family leave wages.  The Notice provides:

In addition to including qualified family leave wages in the amount of wages paid to the employee reported in Boxes 1, 3 (up to the social security wage base), and 5 of Form W-2 (or, in the case of compensation subject to RRTA, in the amount of RRTA compensation paid to the employee reported in Boxes 1 and 14 of Form W-2), employers must separately report to the employee the total amount of qualified family leave wages paid to the employee under the EFMLEA either in Box 14 of Form W-2 or on a separate statement. In labeling this amount, the employer must use the following, or similar, language: “emergency family leave wages.” If a separate statement is provided and the employee receives a paper Form W-2, then the statement must be included with the Form W-2 sent to the employee, and if the employee receives an electronic Form W-2, then the statement shall be provided in the same manner and at the same time as the Form W-2.[7]

Model Language for Employee Instructions

Employees may very well have questions about this information, so employers may wish to provide instructions to the employees regarding this item to hopefully reduce calls to whomever handles payroll issues on the matter.  The IRS provides the following model language in the Notice that can be used to provide such instructions:

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 with 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.[8]

[1] Notice 2020-54, July 8, 2020, https://www.irs.gov/pub/irs-drop/n-20-54.pdf (retrieved July 8, 2020)

[2] Notice 2020-54, Section III

[3] Notice 2020-54, Section III

[4] Notice 2020-54, Section III

[5] Notice 2020-54, Section III

[6] Notice 2020-54, Section III

[7] Notice 2020-54, Section III

[8] Notice 2020-54, Section III