How to Claim the Sick and Family Leave Credit

The Sick and Family Leave Credit, created by the Families First Coronavirus Response Act (FFCRA), provided financial relief for COVID-19-related leave taken between April 1, 2020, and September 30, 2021. This refundable tax credit reimbursed businesses and self-employed individuals for the cost of paid leave.

Although the credit is no longer active for current periods, eligible employers and self-employed individuals who did not claim it previously can do so by amending prior tax returns. To claim the credit retroactively, one must understand the past eligibility rules and filing procedures for the specific 2020 and 2021 periods.

Determining Eligibility for the Credit

Eligible Employers

An employer must have had fewer than 500 full-time and part-time employees to qualify for the credit. This applied to most private-sector businesses and tax-exempt organizations.

Initially, government employers were not eligible. However, the American Rescue Plan Act later extended eligibility to state and local governments for leave taken from April 1, 2021, through September 30, 2021.

Eligible Self-Employed Individuals

Self-employed individuals, such as independent contractors and sole proprietors, could also claim a similar tax credit. Eligibility required them to be unable to work for one of the same qualifying reasons that applied to employees. If an individual was both self-employed and a W-2 employee, they could qualify, provided their W-2 employer had not already claimed the maximum credit for them.

Qualifying Reasons for Leave

An individual had to meet at least one of the specified COVID-19 related conditions to be eligible for paid leave. The qualifying reasons for leave included:

• Being subject to a federal, state, or local quarantine or isolation order related to COVID-19.
• Having been advised by a health care provider to self-quarantine.
• Caring for an individual who was subject to a quarantine order.
• Caring for a child whose school or place of care was closed due to COVID-19 precautions.
• Obtaining a COVID-19 vaccination (for leave taken after March 31, 2021).
• Recovering from any injury, disability, or illness related to the immunization (for leave taken after March 31, 2021).

Calculating the Credit Amount

Calculation for Employers

The credit for employers was based on the qualified leave wages paid to an employee, with the amount depending on the reason for the leave. For an employee taking sick leave for their own care, the credit covered 100% of their regular pay, capped at $511 per day and $5,110 in total.

When an employee took leave to care for another person or a child whose school was closed, the credit was two-thirds of the employee’s pay. This was capped at $200 per day and $10,000 in total over the eligible period. The credit amount also included the employer’s share of Medicare tax on the qualified wages and any allocable qualified health plan expenses.

Calculation for Self-Employed Individuals

Self-employed individuals calculated their credit based on their average daily self-employment income. This figure is found by dividing the annual net earnings from self-employment by 260. The same daily and aggregate limits that applied to employers also applied to self-employed individuals.

For days an individual was unable to work for reasons equivalent to sick leave, the credit was the lesser of their average daily self-employment income or $511 per day. For days taken for reasons equivalent to family leave, the credit was the lesser of two-thirds of their average daily self-employment income or $200 per day.

Required Documentation and Recordkeeping

For Employers

Employers must maintain detailed records to support their claim for the credit. This documentation is necessary to support the eligibility of the leave and the calculation of the credit amount. Required records include:

• The name of the employee requesting leave and the dates requested.
• A statement from the employee confirming they were unable to work for a qualifying reason.
• The name of the government entity that issued a quarantine order, if applicable.
• The name and age of the child and the name of the unavailable school or care provider, if applicable.
• Records showing how the amount of qualified leave wages was determined.

For Self-Employed Individuals

Self-employed individuals must also keep records to justify their eligibility and credit calculation. These records should show which qualifying reason prevented them from working and how they determined their credit amount. This includes records of self-employment earnings, such as a Form 1040 with Schedule C or SE, and the calculations used to determine their average daily income.

Required Forms

Employers used Form 941, Employer’s QUARTERLY Federal Tax Return, to report total qualified leave wages and claim the related credits for each quarter.

Self-employed individuals used Form 7202, Credits for Sick and Family Leave for Certain Self-Employed Individuals, to calculate their credit amount. The completed Form 7202 was then attached to their individual income tax return, Form 1040.

How to Claim the Credit

For Employers

Employers who did not originally claim the credit for qualified leave wages can do so by filing an amended return. The form for this purpose is Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund. A separate Form 941-X must be filed for each amended quarter, reporting the corrected wage and tax amounts to reflect the credit.

For Self-Employed Individuals

Self-employed individuals can claim a missed credit by filing Form 1040-X, Amended U.S. Individual Income Tax Return. To calculate the credit, use Form 7202 and attach it to the Form 1040-X. The amended return allows a taxpayer to correct a previously filed return and claim a refund for the credit.

Deadlines for Amending Returns

Filing an amended return must be done before the statute of limitations expires. For these credits, the deadlines are tied to specific tax years.

For self-employed individuals, the deadline to amend a 2020 tax return to claim the credit has passed. The deadline to amend a 2021 tax return is April 15, 2025.

For employers, the amendment period for 2020 returns has also expired. The deadlines for the 2021 quarters are closing, and the final deadline to amend the return for the third quarter of 2021 is April 15, 2025.