How to Report EPSLA on a Tax Return

The Emergency Paid Sick Leave Act (EPSLA) was a critical support system for businesses and workers, but its tax implications linger long after the program ended. Whether you're an employer amending returns to claim credits, an employee deciphering a W-2, or a self-employed individual who took leave, understanding the reporting rules is key. This guide breaks down exactly how to report EPSLA wages and claim related credits on the correct tax forms.

A Quick Refresher: FFCRA and EPSLA Credits

The Families First Coronavirus Response Act (FFCRA) created two key provisions for paid leave that were effective from April 1, 2020, through September 30, 2021. For-profit employers with fewer than 500 employees were required to provide this leave and, in return, were made whole through refundable payroll tax credits.

The two types of leave were:

• Emergency Paid Sick Leave Act (EPSLA): Provided up to 80 hours of paid sick time if an employee was unable to work due to specific COVID-19 related reasons, like being under a quarantine order or caring for someone who was.
• Emergency Family and Medical Leave Expansion Act (EFMLEA): Provided up to 10 additional weeks of paid family leave if an employee couldn't work because their child's school or place of care was closed due to COVID-19.

While these programs have expired, many businesses are still in the process of claiming their credits retroactively. Understanding the original rules is the first step in properly handling the tax reporting today.

Reporting for Employers: Claiming Credits on Form 941-X

For employers, the credits for providing paid leave under EPSLA and EFMLEA were claimed against their share of Social Security taxes. The primary vehicle for this was Form 941, Employer's QUARTERLY Federal Tax Return. If you paid qualified leave wages but didn't claim the credit at the time, you can still do so by amending the relevant quarterly returns.

The statute of limitations for filing a claim for credit or refund is generally three years from the date you filed your original Form 941 or two years from the date you paid the tax, whichever is later. This means there is still time to review your records and amend returns from 2020 and 2021 if you missed these credits.

How to Amend a Return to Claim FFCRA Credits

To claim the credits now, you must file Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund, for each quarter you paid qualified leave wages.

Here’s the step-by-step process:

1. Identify Qualified Wages: First, you must gather your payroll records and identify the exact dollar amount of qualified sick leave wages and qualified family leave wages paid in the specific quarter you are amending. Remember that qualified wages also include the allocable cost of maintaining the employee’s health insurance coverage during the leave period. The credit has daily limits:

• Sick Leave: Up to $511 per day ($5,110 total) for an employee's own care.
• Sick Leave (Caring for others): Up to $200 per day ($2,000 total) for an employee caring for others.
• Family Leave: Up to $200 per day ($10,000 total over 10 weeks).

2. Prepare a Separate Form 941-X for Each Quarter: You cannot combine multiple quarters onto one form. You'll need an original Form 941 for the corresponding quarter as a reference.

3. Complete the Form 941-X: While filling out the entire form, the most important new lines relate directly to the FFCRA credits. Although the line numbers changed across different revisions of the form, you will be correcting the information on the worksheets from the original Form 941 and carrying it over. For FFCRA credits from Q2 2020 - Q3 2021, the key lines on the Form 941-X will typically include:

• Correcting qualified sick and family leave wages.
• Correcting the nonrefundable and refundable portions of the credit for qualified sick and family leave wages.

You will need to describe in detail the reason for your correction in Part 4 of the form. For example, you might write: "Amending return to claim credit for qualified sick and family leave wages paid under the FFCRA that were not previously claimed."

4. Use Worksheets: The instructions for the original Forms 941 provide worksheets to calculate the credit. You must use these worksheets to accurately determine your refundable and nonrefundable credit amounts before entering them on Form 941-X. Keep these worksheets with your tax records; you do not need to submit them with your return.

Reporting Requirements for Employee Wages on Form W-2

From an employee's perspective, wages received under EPSLA and EFMLEA were taxable income. These payments were subject to federal income tax withholding, as well as the employee's share of Social Security and Medicare taxes. The employer was responsible for withholding these amounts just like regular wages.

The unique requirement was how employers reported these amounts on Form W-2, Wage and Tax Statement. The IRS required employers to separately state the qualified leave wages paid to each employee in Box 14, "Other."

The label in Box 14 should clearly identify the type of leave and the amount paid. The IRS suggested these descriptions:

• “Sick leave wages subject to the $511 per day limit” followed by the dollar amount.
• “Sick leave wages subject to the $200 per day limit” followed by the dollar amount.
• “Emergency family leave wages” followed by the dollar amount.

This separate reporting was informational for the employee. More importantly, it provided necessary information to any employee who was also self-employed. They would need these figures from their W-2 to correctly calculate any sick and family leave credits they might be eligible for based on their self-employment income.

For Self-Employed Individuals: Claiming Credits with Form 7202

Self-employed individuals deserved the same access to paid leave benefits. To achieve this, the FFCRA allowed them to claim a refundable income tax credit equivalent to what an employer would have received.

This was accomplished using Form 7202, Credits for Sick and Family Leave for Certain Self-Employed Individuals. A self-employed person could claim the credit if they were unable to work for any of the FFCRA-specified reasons. The credit was claimed on their annual Form 1040 income tax return.

Calculating and Claiming the Self-Employed Credit

1. Determine Eligibility: To claim the credit, a self-employed individual had to be unable to perform services in their trade or business due to a qualified COVID-19 reason during the eligible period. They must also have maintained the records to prove it.

2. Calculate Average Daily Self-Employment Income: The amount of the credit is based on your "average daily self-employment income." This is your net earnings from self-employment for the year divided by 260. You would calculate this on Form 7202.

3. Determine the Days of Leave: Document the specific days you were unable to work. You were limited to the same number of days as a W-2 employee: up to 10 days for sick leave and up to 50 days for family leave (for a total of up to 60 leave days between April 1, 2020 and March 31, 2021; additional days were allowed for the period from April 1, 2021 to September 30, 2021).

4. Complete Form 7202: On the form, you would enter your leave days, calculate your credits subject to the daily limits ($511 or $200), and arrive at a total credit amount.

5. Report on Form 1040: The total credit calculated on Form 7202 is then carried to your Form 1040, specifically on Schedule 3, "Additional Credits and Payments." From there, it reduces your total tax liability, and if the credit exceeds your liability, you'd receive the difference as a refund.

Just like employers, self-employed individuals can amend their 2020 and 2021 returns using Form 1040-X if they were eligible for the credit but failed to claim it.

Recordkeeping Is Non-Negotiable

The IRS puts a strong emphasis on maintaining detailed records to support any claim for FFCRA credits. Whether you are an employer or self-employed, poor documentation is the fastest way to have your claim denied in an audit.

For employers, key documentation includes:

• All employee requests for sick or family leave, including documentation showing the need for leave.
• Payroll records showing the specific amounts paid as qualified leave wages.
• Records of allocable health plan expenses.
• Copies of filed Forms 941 and the corresponding Forms 941-X.

For self-employed individuals, keep meticulous records proving you were unable to work, such as:

• A copy of the relevant government quarantine or isolation order.
• A healthcare provider's note advising self-quarantine.
• Notices of school or childcare closures.
• Records showing your typical work schedule and earnings.

Final Thoughts

Reporting EPSLA requires careful attention to detail, whether you are filing an amended Form 941-X as an employer, properly labeling Box 14 on a W-2, or claiming credits on Form 7202 for self-employment. Getting these details right ensures you receive the full credit you are entitled to and remain compliant.

When dealing with past IRS guidance or complex retroactive claims like FFCRA credits, pinpointing the right information and citations wastes valuable time. Instead of hunting through archived IRS web pages, our Feather AI provides immediate, citation-backed answers from authoritative tax sources. It's the fastest way to get the specific rules you need to amend returns with confidence.