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Level 1

COVID-19 payroll tax credits

Hello Folks,

I'm scratching my head on how to apply the payroll tax credits after I've paid an employee COVID sick pay.  Paying the employees doesn't seem to be an issue, but it's applying the payroll tax credits properly so that I'm not in trouble with the IRS for taking inappropriate  credits and that my 941 report isn't a nightmare.  The QB info pages on "How to track paid leave and sick time for the coronavirus" dated in July 2020 doesn't mention the Medicare Company portion that I believe is a credit. It mentions how to set up the National Paid Leave & Medicare Credit.  When I pay my 941, may I take the credit there and if so, what will my 941 look like?  Also, when setting up this credit in the Payroll Item List QB suggests using the COVID-19 expense account both times.  Is that correct or should we be used the COVID-19 Payroll liabilities account in the first box?  Any guidance from the Community would be helpful.  Thank you.  Lynda

3 Comments 3
QuickBooks Team

COVID-19 payroll tax credits

Hello, LyndaKShaw. 


Let me share some information on how to apply for the payroll tax credit after you've paid your employees covid sick pay in QuickBooks.  


To track the National Paid Leave Medicare Credit, Form 941, and your Covid-19 expense account, you’ll have to follow the steps provided in this article: How to track paid leave and sick time for the coronavirus


That’ll make sure that your employees got the money they needed and comply with the Family First Coronavirus Response Act (FFCRA). You’ll have to set up your expense accounts for the paid leave from the Chart of Accounts and then set up your liability and expense accounts.


Check this article for more information: How QuickBooks Populates The 941.


Let me know if you still have questions with your tax credit in QuickBooks. I'm always here to help. Have a wonderful day!

Level 2

COVID-19 payroll tax credits

I am trying to set up the payroll tax credits in QB and I can't figure it out. I sat holding with customer support while the guy from QB had no idea what to do. I figured out how to pay  the employee, but I don't know how to setup the credits for the wages and SS & Medicare that flow to the payroll tax liabilities and then to the 941?

QuickBooks Team

COVID-19 payroll tax credits

Hi there, Lmendez10.


Welcome back to the QuickBooks Community. I appreciate you for sharing details of what you've done to fix the issue. With this, I'll be sharing information and steps to ensure you're able to set up the credits for the wages. Then, make sure the SS & Medicare flow on the payroll tax liabilities and the 941 form.


With QuickBooks Desktop Payroll, you can secure your employees have the money they need, and you comply with the Family First Coronavirus Response Act (FFCRA) and the American Rescue Plan Act (ARPA). To begin with, you'll first need to figure out what pay leave type they fall under and their hourly rate before you can give your employees sick leave. 


For Benefit type: 


Under the FFCRA, there are three different types of paid leave. Employers can also get credit for any health insurance premiums they pay for impacted employees while they are on leave.


  • National Paid Leave Employee: Your employee is sick and under quarantine with COVID-19.
  • National Paid Leave Family: Your employee is taking care of a family member who is sick or impacted with COVID-19.
  • National Paid Leave FMLA: Your employee is taking leave under the Family Medical Leave Act (FMLA) to care for children under 18 whose school or child care is closed because of COVID-19.
  • National Paid Leave - Health Credits: If you are contributing to an employee’s health insurance during the time they are being paid under the FFCRA provisions, you can track this amount and a credit will be applied to your federal tax liability.


For Hourly rate: 


In most circumstances, you'll pay your employee the hourly rate you've paid them over the last 6 months. However, there are a few exceptions that correspond with the Regular Rate of Pay Under the Fair Labor Standards Act (FLSA).


Once you confirmed which type of paid leave type is applicable to your employee’s situation, setting up this account will help track the eligible wages to use towards tax credits later on. 


Here's how:


  1. Go to the Lists menu.
  2. Choose Chart of Accounts.
  3. Select the Account dropdown and select New.
  4. Choose Expense. Then, click Continue.
  5. From the Account Type dropdown, select Other Expense.
  6. Give your expense account a name, such as COVID-19 Expenses, in the Name field, fill out all the relevant information.
  7. Click the Save and Close button.


Once you set up your liability and expense accounts, you'll have to set up payroll items to track each type of paid leave found under the FFCRA that you identified above. To see the steps on how to perform the process, you can click this article: How to track paid leave and sick time for the coronavirus.


Please refer to this article to view different details on how you can make sure that you get the tax credit after you paid your employee's paid leave or provide health benefits under the FFCRA and ARPA:  How to claim your tax credits under the Family First Coronavirus Response Act.


Please don't hesitate to let me know if you have further questions or concerns About payroll tax credits. You can always reach out to me anytime you find you need a helping hand in getting back to business. Take care!

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