In Notice 2021-53[1] the IRS has issued guidance to employers for reporting qualified leave wages for 2021. The Notice serves to update the guidance provided for reporting such items on 2020 W-2s to take into account changes made in the qualified leave wage provisions for 2021.

General Reporting Requirements

The overall reporting requirements are described as follows by the Notice:

In order to provide eligible 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 the 2021 taxable year, this notice requires eligible employers to report to employees the amount of qualified sick leave wages and qualified family leave wages paid to the employees under (i) sections 7001 or 7003 of the Families First Act for leave provided during the period beginning January 1, 2021, through March 31, 2021, and (ii) sections 3131 and 3132 of the Code for leave provided during the period beginning April 1, 2021, through September 30, 2021. Furthermore, since qualified leave wages are defined under both the Families First Act and sections 3131 and 3132 of the Code as wages defined in section 3121(a) without regard to the exclusions from employment under section 3121(b)(1) through (22) and compensation defined in section 3231(e) without regard to the exclusions from compensation under section 3231(e)(1), eligible employers must determine the amount of qualified leave wages to report without regard to the exclusions from employment under section 3121(b)(1) through (22) and without regard to the exclusions from compensation under section 3231(e)(1).[2]

These special reporting rules are only required for employers that have claimed the credits involved—if the employer did not claim such credits, no extra reporting is required:

Only eligible employers who claim credits under the Families First Act or sections 3131 and 3132 of the Code are required to separately report qualified sick leave wages and qualified family leave wages to their employees. Eligible employers who forego claiming refundable tax credits under the Families First Act or sections 3131 and 3132 of the Code for qualified leave wages are not required to separately report qualified sick leave wages or qualified family leave wages paid to employees to the extent those wages are not claimed as a credit. Furthermore, governmental employers that are prohibited from claiming credits for qualified leave wages are not required to separately report any qualified sick leave wages or qualified family leave wages paid to employees.[3]

Specific Reporting Instructions

Because of the differing rules that apply to the credit for different time periods in 2021, an employer must separately report:

• Leave provided to employees during the period beginning January 1, 2021, through March 31, 2021 (under the Families First Act as extended by the Comprehensive Appropriations Act, 2021); and

• Leave provided to employees during the period beginning April 1, 2021, through September 30, 2021, (under sections 3131 and 3132 of the Code as provided by the American Rescue Plan Act of 2021).[4]

Employers have two options for this reporting:

Employers must separately state each of these wage amounts either on the 2021 Form W-2, Box 14, or on a separate statement included with each employee's Form W-2, Wage and Tax Statement. Self-employed individuals claiming a credit for a qualified sick leave equivalent amount or qualified family leave equivalent amount must report these qualified sick leave wages and qualified family leave wages on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, included with their 2021 income tax returns, and may have to reduce (but not below zero) any qualified sick leave or qualified family leave equivalent amounts by these qualified leave wages.[5]

The employer is required to report the following to the employee.  Each item must be reported separately either in Box 14 or on a separate statement to each employee:

• 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 with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021. In labeling this amount, employers must use the following, or similar language: “sick leave wages subject to the $511 per day limit paid for leave taken after December 31, 2020, and before April 1, 2021.”

• 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 with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021. In labeling this amount, employers must use the following, or similar language: “sick leave wages subject to the $200 per day limit paid for leave taken after December 31, 2020, and before April 1, 2021.”

• The total amount of qualified family leave wages paid to the employee under the EFMLEA with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021. In labeling this amount, employers must use the following or similar language: “emergency family leave wages paid for leave taken after December 31, 2020, and before April 1, 2021.”

• 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 with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021. In labeling this amount, employers must use the following, or similar language: “sick leave wages subject to the $511 per day limit paid for leave taken after March 31, 2021, and before October 1, 2021.”

• The total amount of qualified sick leave wages paid for reasons described in paragraphs (4), (5), and (6) of section 5102(a) of the EPSLA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021. In labeling this amount, employers must use the following, or similar language: “sick leave wages subject to the $200 per day limit paid for leave taken after March 31, 2021, and before October 1, 2021.”

• The total amount of qualified family leave wages paid to the employee under the EFMLEA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021. In labeling this amount, employers must use the following or similar language: “emergency family leave wages paid for leave taken after March 31, 2021, and before October 1, 2021.”[6]

The following special rules apply to using a separate statement rather than reporting the amounts on Form W-2:

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 must be provided in the same manner and at the same time as the Form W-2.[7]

The Notice also provides the following requirements for an employer that erroneously reported such sick pay but did not (or was not eligible to) claim the credit:

If an employer that does not claim credits under these provisions or an employer that is prohibited from claiming those credits erroneously reports sick leave wages or family leave wages to an employee on Form W-2, Box 14, or on a separate statement, the employer must either furnish a W-2c, Corrected Wage and Tax Statement, or provide a corrected statement to the employee correcting the erroneous reporting. The Form W-2c or corrected statement should be sent only to the employee. The employer should not file Form W-2c with the Social Security Administration solely to correct the amount in Box 14.[8]

The employer must also provide an explanation of the implications of these amounts to the employee.  The Notice states:

As part of the Instructions for Employee, under the instructions for Box 14, for the Forms W-2, or in a separate statement sent to the employee, the employer may provide additional information about qualified sick leave wages and qualified family leave wages and explain that these wages may limit the amount of the qualified sick leave equivalent or qualified family leave equivalent credits to which the employee may be entitled with respect to any self-employment income. The following model language (modified as necessary) may be used. Please note that this language has been modified from that suggested in Notice 2020-54. (emphasis added)[9]

As that last sentence notes, it would be a mistake for employers to simply continue to use the employee instruction text the organization used for 2020 W-2s.

The model 2021 language is provided below:

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 and/or sections 3131 and 3132 of the Internal Revenue Code. Specifically, up to six types of paid qualified sick leave wages or qualified family leave wages may be reported in Box 14:

Sick leave wages subject to the $511 per day limit paid for leave taken after December 31, 2020, and before April 1, 2021, because of care you required.

Sick leave wages subject to the $200 per day limit paid for leave taken after December 31, 2020, and before April 1, 2021, because of care you provided to another.

Emergency family leave wages paid for leave taken after December 31, 2020, and before April 1, 2021.

Sick leave wages subject to the $511 per day limit paid for leave taken after March 31, 2021, and before October 1, 2021, because of care you required.

Sick leave wages subject to the $200 per day limit paid for leave taken after March 31, 2021, and before October 1, 2021, because of care you provided to another.

Emergency family leave wages paid for leave taken after March 31, 2021, and before October 1, 2021.

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 may have to 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.[10]

[1] Notice 2021-53, September 7, 2021, https://www.taxnotes.com/research/federal/irs-guidance/notices/guidance-prescribes-reporting-requirements-for-qualified-leave-wages/783k8 (retrieved September 10, 2021)

[2] Notice 2021-53, September 7, 2021

[3] Notice 2021-53, September 7, 2021

[4] Notice 2021-53, September 7, 2021

[5] Notice 2021-53, September 7, 2021

[6] Notice 2021-53, September 7, 2021

[7] Notice 2021-53, September 7, 2021

[8] Notice 2021-53, September 7, 2021

[9] Notice 2021-53, September 7, 2021

[10] Notice 2021-53, September 7, 2021