Emergency Leave Pay through Square Payroll
The Families First Coronavirus Response Act (FFCRA) required qualified employers to give employees up to 80 hours (two weeks) of emergency paid sick leave and up to 10 weeks of paid family leave for certain reasons related to COVID-19. This applied to leave taken between April 1, 2020 and March 31, 2021.
The American Rescue Plan Act (ARPA) of 2021 amended and extended the tax credits for paid sick and family leave for wages paid with respect to the period beginning April 1, 2021 and September 30, 2021. Wages earned after September 30, 2021 will no longer be eligible for ARPA paid sick and family leave tax credits. To ensure accurate reporting on Q3 2021 tax filings, you must process emergency leave payments through Square Payroll by September 26, 2021 at 8 pm PST. The option to process this type of run in Square Payroll will no longer be available after this deadline.
Eligible employers who pay qualifying leave can earn payroll tax credits equal to the amount of leave wages they paid out, rather than depositing those taxes with the IRS. This article provides an overview of the FFCRA / ARPA, instructions on how to pay emergency leave through Square Payroll, and instructions on how to request an advancement of the tax credit by filing Form 7200.
The FFCRA / ARPA applies to private businesses with fewer than 500 employees. Businesses with fewer than 50 employees may qualify for exemption from the requirement to provide leave due to school or child care closings if the leave requirements would jeopardize the business financially. Team members who are independent contractors are not considered employees for the purposes of the 500-employee threshold.
Types of Leave
There are three types of emergency leave under ARPA:
Emergency Paid Sick Leave
There are two types of Sick Leave and employees can only use a combined 80 hours of leave across both types. When processing an Emergency Leave Payment after April 1, 2021, confirm your employees have not exceeded the maximum allowable payment (in hours and/or dollar amounts).
* Care for self: This provides paid sick leave at the employee’s regular pay rate when the employee is unable to work due to required self-quarantine, has received or is seeking a medical diagnosis when experiencing COVID-19 symptoms, or received or recovered from COVID-19 vaccination. The maximum benefit is $511 per day (for a total maximum benefit of $5,110).
* Care for others: This provides paid sick leave at two-thirds (⅔) the employee’s regular pay rate if the employee cannot work because they are caring for someone who is subject to quarantine or caring for a child whose school or child care is closed due to COVID-19. The maximum benefit is $200 per day (for a total maximum benefit of $2,000).
Emergency Paid Family Leave
If the employee is unable to work because they are caring for a child whose school or child care is closed due to COVID-19 or received or recovered from COVID-19 vaccination this policy gives them up to an additional 12 weeks of expanded paid family medical leave (FMLA) at two-thirds (⅔) the employee’s regular pay rate. Employees who have been employed for at least 30 days are eligible for this. The maximum benefit is $200 per day (for a total maximum benefit of $12,000).
More information about these types of leave can also be found on the IRS' website
Employers that pay qualified emergency leave wages are entitled to a tax credit to help cover the cost of the paid leave during which employees are unable to work for certain reasons related to COVID-19. A portion of the tax credits will be applied immediately when the “Emergency Leave Pay” is processed through Square Payroll by allowing employers to retain the federal payroll tax that would typically be debited and sent to the IRS. These taxes include employee Federal Income Tax, employee Medicare, employee Social Security and employer Medicare. You will get tax credit back for the employer Medicare share in the Form 941. State and local income taxes, along with federal and state unemployment taxes are calculated and debited as normal.
Square Payroll will report emergency leave on Form 941 when filing your quarterly taxes. If the remaining emergency leave credit for qualified wages has not already been reimbursed by the IRS to the employer by the end of the quarter, the remaining amount will be credited back to the employer by the IRS after Form 941 is filed and reconciled. You also have the option of requesting an accelerated credit from the IRS by following the instructions to file Form 7200 below.
Health Insurance Credits
Square Payroll does not withhold any voluntary pre-tax deductions, such as health insurance or 401K benefits, on Emergency Leave Payments. Credit resulting from qualified health insurance benefits will not be reported on Part 3 of Form 941. The tax credit requested on the Form 941 filed by Square Payroll will only reflect the qualified emergency leave wages.
If you would like to receive a credit for the cost of maintaining qualified health insurance plan(s) during the emergency leave coverage period by either filing Form 941 or Form 7200, Square Payroll will not be able to file Form 941 on your behalf. In this case, Form 941 will need to be filed outside of Square Payroll. If this applies to your business, please contact our Support team to opt out of Form 941 filings.
Process Emergency Leave Pay
To ensure accurate reporting on Q3 2021 tax filings, you must process emergency leave payments through Square Payroll by September 26, 2021 at 8 pm PST. The option to process this type of run in Square Payroll will no longer be available after this deadline.
To process a run for Emergency Sick or Family Leave:
1. Click Pay Employees > Add emergency sick leave on the Payroll section of your online Square Payroll Dashboard or Square Payroll app.
2. Select the Pay Period you would like to pay your employee(s).
3. Select the Payment Method you would like to pay your employee(s). You can pay all employee(s) by their default payment method or by check.
4. Select the employee you would like to pay. If you need to pay multiple employees, click “+ Add another” and repeat steps 4 -8.
5. Select the Type of Leave:
* Emergency Sick Leave: Select “Care for self” which pays the employees at their regular pay rate or “Care for others” which pays the employee at two-thirds (⅔) their rate of pay. These options provide the employee with up to 80 hours (two weeks) of sick leave combined across both leave types.
* Emergency Family Leave: This pays the employee at two-thirds (⅔) their rate of pay and provides them with an additional 12 weeks (not days) of available expanded paid family medical leave.
6. Enter the number of Hours of leave per employee. The “Remaining Hours” will automatically populate based on the number of hours used and the type of leave selected above. Note: You must confirm your employees have not exceeded the maximum allowable payment (in hours and/or dollar amounts).
7. Enter the Number of Days over which the leave was taken. This is used as a reference to limit the benefit amount an employee can earn per day.
8. The Effective Rate will populate based on the employee’s hourly rate and the type of leave selected. Please ensure the employees pay rate does not fall below your state and local minimum wage. If applicable, the rate can be updated by clicking “Edit” next to the hourly rate. For more information on how to calculate the employee’s effective rate for ARPA purposes, see the IRS' website.
9. Gross Pay is automatically calculated by multiplying the employee’s hours by their effective pay rate. Please ensure the employee is not earning more than $511/day to “care for self,” more than $200/day to “care for others,” or more than $200/day for family leave. If the daily rate of pay is above those thresholds, please update the effective rate accordingly.
10. Click Next.
11. You will be taken to the Review screen. The “Accounting Summary” shows the gross wages and the applicable employer taxes. Eligible federal taxes (income tax, Social Security, Medicare) will not be included in the “Withdrawal Summary” as they are retained as a credit and not deposited to the IRS. They will still be reported on Form 941.
12. Click Confirm Withdrawal to complete processing the run.
The emergency leave payment will appear in the History & Reports tab after processing the run.
Form 7200, Advance Payment of Employer Credits
Square Payroll will automatically apply a portion of the FFCRA / ARPA tax credit when the “Emergency Leave Pay” run is processed. The remaining amount will be credited back to you after Form 941 is reconciled by the IRS (typically 6 - 10 weeks after the end of the quarter). If you would like to receive the remaining credits sooner, you have the option to file Form 7200 outside of Square Payroll.
If you opt to file Form 7200, you must report the date you received the credit from the IRS, the credit amount received from line 8 on Form 7200, and if the credit includes health insurance costs to Square Payroll by emailing or calling our Support team. Instructions on how to file this form can be found on Form 7200 for Advance Payment of Employer Credits. When filing Form 7200, please ensure the amounts entered match the Emergency Leave wages processed through Square Payroll. Reporting incorrect wage amounts or failing to report this information to Square Payroll can result in incorrect tax filings and the need to file an amended Form 941-X outside of Square Payroll. Note: If you request credit for qualified health insurance costs on Form 7200, Square Payroll will not be able to file Form 941 on your behalf.