How Do You Report COVID Leave on W-2s?

Paid COVID leave was a much-needed benefit for many employees. And although employers technically didn’t foot the bill on their own (thanks to the tax credit), they are responsible for reporting amounts paid on Forms W-2. 

Did your clients dole out any COVID-19 paid leave in tax year 2021? If so, they must know how to report the amounts when filling out a W-2 for each applicable employee.

To make sure you and your clients are on the same page, we’ll answer the following questions:

• What do employers need to report?
• How do employers need to report it?
• Is your payroll software partner prepared?

What do employers need to report?

In 2020 and 2021, certain employers who provided qualifying paid COVID leave to employees could claim a tax credit to offset the payroll expenses. Qualifying COVID leave includes paid sick leave (self), paid sick leave (other), and paid family leave.

Paid sick leave (self)

• Use: Time off an employee could use due to COVID quarantine or isolation or to take time off to receive a vaccine or deal with vaccination complications
• Maximum number of days off: Up to 10 days of paid time off
• Wage amount: Regular wages, up to $511 / day

Paid sick leave (others)

• Use: Time off an employee could use to care for someone due to COVID quarantine or isolation, to accompany an individual obtaining a vaccination, or to care for someone recovering from vaccination
• Maximum number of days off: Up to 10 days of paid time off
• Wage amount: ⅔ of wages, up to $200 / day

Paid family leave

• Use: Time off an employee could use to care for a child whose school, place of care, or childcare provider closed or was unavailable due to COVID-19
• Maximum number of days off: Up to 10 weeks (under FFCRA, see below) or 12 weeks (under ARP, see below) of paid time off
• Wage amount: ⅔ of wages, up to $200 / day

For many employers, paid COVID leave was mandatory in 2020 under the Families First Coronavirus Response Act, which expired on December 31, 2020.

But, the following acts let employers who chose to provide employees paid leave in 2021 claim tax credits during the following timeframes:

• Amended Families First Coronavirus Response Act (FFCRA): January 1, 2021 - March 31, 2021
• American Rescue Plan (ARP): April 1, 2021 - September 30, 2021

The American Rescue Plan reset the paid leave limit. So, employees who qualified for paid sick and/or family leave and hit the limit under the FFCRA could also be eligible for leave under the ARP.

Employers who paid qualifying COVID leave and claimed tax credits under either act (or under both acts) must report the amounts.

How do employers need to report it?

Employers whose employees received COVID paid sick and/or family leave in 2021 must report the amounts on applicable Forms W-2.

Employers report FFCRA and ARP COVID sick and/or family leave wages in Boxes 1, 3 (up to the Social Security wage base), and 5. Employers must also report leave in Box 14 or on a separate statement.  

When reporting wages in Box 14 or on a separate statement, employers need to get specific and break down the:

• Type of leave (sick self, sick other, family)
• Timeframe the leave was paid during (i.e., January 1, 2021 - March 31, 2021 or April 1, 2021 - September 30, 2021)
• Total amount of COVID leave wages paid for each

This is where it can get wordy and confusing. Thankfully, the IRS provides sample language employers can use.

Employers who paid leave wages between January 1, 2021 - March 31, 2021 (aka under the amended FFCRA) can use the following language in Box 14 or on a separate statement (sent with the W-2) when reporting the amount of qualified wages:

• Sick leave (self): “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 (other): “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.”
• Family leave: “Emergency family leave wages paid for leave taken after December 31, 2020, and before April 1, 2021.”

Employers who paid leave wages between April 1, 2021 - September 30, 2021 (aka under the ARP) can use the following language in Box 14 or on a separate statement when reporting the amount of qualified wages:

• Sick leave (self): “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 (other): “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.”
• Family leave: “Emergency family leave wages paid for leave taken after March 31, 2021, and before October 1, 2021.”

Report each instance of leave in Box 14 or on a separate statement. An employee may have used multiple types of paid COVID leave at different times. For more information, check out IRS Notice 2021-53.

Is your payroll software partner prepared?

If you and your clients use payroll software, reporting paid COVID leave should be pretty easy (emphasis on the should). The difficulty level depends on whether your payroll partner is prepared for these changes. 

Want to know if your payroll software partner is prepared? Ask yourself the following questions:

• Does the payroll software have COVID sick and family leave hour types?
• Was it easy for employers to enter COVID sick and family leave and pay employees?
• Do payroll reports show employees’ COVID hours and wages?
• How did your payroll partner handle W-2 reporting for tax year 2020?

Reach out to your payroll partner, look through their software, or read their help articles on paid COVID leave to get the answers to these questions.

If you’re thinking about partnering with a new provider, ask potential partners what they’ve done to simplify COVID sick leave reporting.