The Internal Revenue Service has released more information on tax credits available for paid sick and family leave under the American Rescue Plan Act of 2021.
The IRS supplemented the frequently asked questions fact sheet on Thursday with two new sets of questions and answers on the Form W-2c and on self-employed individuals.
The American Rescue Plan Act, which President Biden signed into law last March, amended and extended the tax credits available to eligible employers that provide paid sick and family leave under the Families First Coronavirus Response Act of 2020. Under the American Rescue Plan, self-employed individuals are entitled to equivalent credits based on similar circumstances in which they’re unable to work.
In a new question that was added to the FAQ on Thursday, the IRS answers the question of whether an eligible employer that claims the tax credits for qualified leave wages paid after Dec. 31, 2021, for leave taken by an employee in 2021 needs to furnish to the employee a Form W-2c to correct the amount of sick leave and family leave wages reported in Box 14 of the employee’s 2021 Form W-2. The answer is yes. If the employer reports sick leave or family leave wages paid after Dec. 31, 2021, for leave taken by an employee after March 31, 2021, and before October 1, 2021, and claims a credit for those sick and family leave wages, the employer must either (1) send the employee a Form W-2c, Corrected Wage and Tax Statement, correcting the employee’s 2021 Form W-2, Wage and Tax Statement by reporting the corrected amounts of sick leave and family leave wages (to include the qualified leave wages paid after Dec. 31, 2021) in Box 14, or (2) provide a corrected statement to the employee fixing the prior reporting. The employer should not file a Form W-2c with the Social Security Administration just to correct the amount in Box 14.
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In another new FAQ section, the IRS deals with what happens with the self-employed and Form W-2c, and whether to file an amended return. “If a self-employed individual who claimed the self-employed equivalent leave credit receives a Form W-2c from an employer reporting corrected qualified sick and/or family leave wages received for the period beginning April 1, 2021, and ending Sept. 30, 2021, should the individual file an amended tax return?”
The answer depends. “If a self-employed individual who claimed the qualified leave equivalent credits for qualified sick and/or family leave equivalent amounts for the period beginning April 1, 2021, and ending Sept. 30, 2021, receives a Form W-2c, Corrected Wage and Tax Statement, reporting corrected amounts of sick and/or family leave wages in Box 14 (or receives a corrected statement) for this period, the individual must recalculate the credit on the 2021 Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals,” said the IRS. “If the amount of the qualified leave equivalent credit has changed from the amount claimed on the individual’s 2021 Form 1040, U.S. Individual Income Tax Return, the individual must file a Form 1040-X, Amended U.S. Individual Income Tax Return, for 2021 with the corrected amounts from the Form 7202.”