COVID-Related W-2 and 941 Reporting for Public School Districts

By Katy Osborn posted 01-19-2021 07:17 PM

  
Co-Authored by Justin Cook

Since early 2020, COVID-19 has been responsible for unprecedented disruptions to the American economy and substantial hardships for countless individuals. The federal government acted quickly bypassing two wide-ranging relief measures in March 2020: the Families First Coronavirus Response Act (the “FFCRA”) and the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). These laws include new mandated paid sick and family leave for employees, as well as the Qualified Family Leave Credit, Qualified Sick Leave Credit, and Employee Retention Tax Credits (collectively, the “Employer Tax Credits”). Unfortunately for public school districts, governmental entities and political subdivisions are ineligible for the Employer Tax Credits;[1] however, they must comply with several new federal tax reporting obligations arising from the new laws. This article addresses federal tax reporting for public school districts in the wake of the FFCRA and CARES Act.[2]

Form W-2 Reporting
IRS Notice 2020-54 imposes a new Form W-2 reporting obligation related to the FFCRA. Though ineligible for the Qualified Family Leave Credit and Qualified Sick Leave Credit, school districts generally must comply with the FFCRA’s paid leave provisions. 

The FFCRA requires most employers to provide up to 80 hours of paid sick leave to employees unable to work or telework due to any of the following circumstances (“Qualified Sick Leave”):

  1. The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19.
  2. The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19.
  3. The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.
  4. The employee is caring for an individual who is subject to an order as described in subparagraph (1) or has been advised as described in paragraph (2).
  5. The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID-19 precautions.
  6. The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.[3]

For leave qualifying under 1 through 3 above, the paid leave is subject to a $511 per day limit. For leave qualifying under 4 through 6 above, the paid leave is subject to a $200 per day limit.[4]

Similarly, the FFCRA requires most employers to provide up to ten weeks of paid family leave for each employee who is unable to work or telework due to a need to care for his or her child under 18 years of age when the child’s school or place of care has been closed due to COVID-19 (“Qualified Family Leave”). This paid leave is subject to a $200 per day limit.[5]

IRS Notice 2020-54 requires employers to report the amount of wages paid to each employee as Qualified Sick Leave and Qualified Family Leave (i.e., Qualified Sick Leave Wages and Qualified Family Leave Wages) in either Box 14 of Form W-2 or on a separate statement provided to the employee at the same time and in the same manner as Form W-2. 

For Qualified Sick Leave Wages, the IRS Notice requires employers to separately state the following categories: (i) “sick leave wages subject to the $511 per day limit”; and (ii) “sick leave wages subject to the $200 per day limit.” For Qualified Family Leave Wages, the employer should label the amount as “emergency family leave wages.” 

If the employer opts to provide a separate statement as opposed to reporting these amounts on Form W-2, the employer must develop its own template because the IRS does not provide a standard form for the separate statement. However, the IRS does provide model language that may be included with a separate statement explaining to employees why they are receiving the additional wage information. This model language is set forth 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. 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.   

Form 941
The IRS reissued Form 941, Employer’s Quarterly Federal Tax Return, twice during 2020. The first reissued version was applicable only to the second quarter 2020. The current version is applicable to quarters three and four. The form was revised to include several additional lines for reporting information related to the Employer Tax Credits. 

Line 5a includes two additional lines for reporting of Qualified Sick and Family Leave Wages subject to social security, 5a(i) and 5a(ii):


Because these qualified leave wages are not subject to the employer portion of social security tax, the wages are separately reported in order to allow employers to calculate only the employee portion of the tax. Note the applicable tax rate is 0.062, rather than 0.124. Only qualified leave wages that are subject to social security tax are reported on lines 5a(i) and 5a(ii).

Because public school district wages are not subject to social security taxes, the wages reported by a public school on lines 5a, 5a(i), and 5a(ii) should be $0.

Lines 11b-11c were also added to the revised Form 941, which contain calculations based on the referenced Worksheet 1:


Worksheet 1 was issued by the IRS to assist employers in calculating the amount of Employer Tax Credits and is not filed with Form 941. Because public schools are not eligible for the credits, there is no need to complete Worksheet 1, and the credit reported on lines 11b-11c should be $0.

Lines 13b-13g were added to Form 941 to enable employers to report deferrals of social security taxes, refundable Employer Tax Credits, and advances of those credits: 



Because public school wages are not subject to social security tax, there is no tax to be deferred. As stated above, public schools are not eligible for the Employer Tax Credits.  Accordingly, these lines are not applicable to public schools.

 

Lines 19-25 are the amounts used on Worksheet 1 to calculate the Employer Tax Credits:


Because public schools are not eligible for the credits, these lines are not applicable to public schools.



Katy Osborn is Of Counsel at Bricker & Eckler LLP
937.535.3905 | kosborn@bricker.com

Justin Cook is Associate at Bricker & Eckler LLP
614.227.4836 | jdcook@bricker.com

[1] P.L. 116-127, Sections 7001(e)(4) and 7003(e)(4).

[2] The Consolidated Appropriations Act, 2021, the latest COVID-19 relief measure, extended the Employee Retention Tax Credit to certain public employers that are: (i) instrumentalities, colleges and universities exempt under section 501(a) of the Internal Revenue Code; and (ii) entities that provide medical care as a principal purpose.  This expansion of the credit does not apply to public school districts.

[3] P.L. 116-127, Section 5102.

[4] Other limitations also apply to an employer’s obligation to provide sick and family leave.  Only the limitations relevant for federal tax reporting are discussed herein.

[5] P.L. 116-127, Section 3102.

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