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Track paid leave and sick time for the coronavirus in QuickBooks Desktop Payroll

SOLVEDby QuickBooksQuickBooks Desktop Payroll75Updated October 22, 2021
As of September 30, 2021, the National Paid Leave and associated Health Premium credits have expired. Do not use these items on paychecks or credits on payroll tax payments starting October 1, 2021. Should you need to adjust your payroll for previous eligible periods, contact us for support.
For more information visit the IRS web site.

Learn how to pay your employees paid leave if they’ve been affected by COVID-19 with QuickBooks Desktop Payroll.

With QuickBooks Desktop Payroll, you can ensure 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).

Update May 2021: The IRS has provided new guidance about paid leave and sick time due to the coronavirus.

What's changed? Leave taken from April 1, 2020, through March 31, 2021 wasn't subject to Employer Social Security tax. Leave taken April 1, 2021, to September 30, 2021 is now subject to Employer Social Security tax. A credit may be taken later when you pay and file your tax forms.

What do you need to do? If you provided paid leave to employees on April 1, 2021 or after, you need to set up new payroll items. Follow the steps below to create the new items.

If you used the already existing payroll items after April 1, 2021, you'll also need to do an "in and out" on the employee's next paycheck to remove the amount included for leave taken on or after April 1, 2021 from the previous item and place it into the new payroll items set with the ARPA tax tracking types. This will make sure that taxes are tracked appropriately for leave paid on or after April 1, 2021

Before you can pay your employees, you need to do a few things. Here's what to do.

Step 1: Determine your employee’s benefit and hourly rate

Before you can give your employees this sick leave, you first need to figure out what pay leave type they fall under and their hourly rate.

Benefit type

Under the FFCRA, there are three different types of paid leave. Employers can also get a 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.

Hourly rate

In most cases, 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).

  • Employees on commission: You need to create an hourly rate for them. Their hourly rate under the FFCRA needs to be equal to the commission paid over the last 6 months divided by their hours worked in the 6 month period.
  • Tipped Employees: You'll need to ensure you include your employees tipped income when entering their paid leave or FMLA expansion pay. Review the amount of income they received over the last six months. Then average it out over the number of hours they worked in the same period. You'll need to change the employee's pay rate during this time and ensure you're paying them at least minimum wage required under the FLSA, your state, or local jurisdiction.

Step 2: Set up your expense accounts for the paid leave

Once you know 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.

Important: if you have already set up an account to track paid leave before April 1, 2021, you don't need to set up a second one.

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

Step 3: Set up payroll items

Once you set up your liability and expense accounts, you need to set up payroll items to track each type of paid leave found under the FFCRA that you identified in step 1.

Important: Leave taken April 1, 2021 to September 30, 2021 is now subject to Employer Social Security tax and you must use the steps to create new payroll items to comply with the American Rescue Plan Act.

National Paid Leave Employee and National Paid Leave Family 

  1. Go to the Employees menu, then Manage Payroll Items, then select New Payroll Item.
  2. Select Custom Setup, then select Next.
  3. Select Addition (Employee Loan, Mileage Reimbursement), then select Next.
  4. Give your pay type a name, such as National Paid Leave EE or National Paid Leave Family, then select Next.
  5. In the Expense account window, select COVID-19 Expenses (or whatever you named the expense account) and then select Next. 
  6. In the Tax tracking type window, select the paid leave type, then select Next.
    • For leave taken before April 1, 2021, choose the pay such as National Paid Leave EE or National Paid Leave Family.
    • For leave taken after April 1, 2021, choose National Leave ARPA - Emp or National Leave ARPA - Family.
  7. In the Taxes window, select Next.
  8. In the Calculate Based on Quantity window, select Calculate this item based on Quantity, and then select Next.
  9. In the Default Rate and Limit window, set the rate for the following items. The National Paid Leave Employee limit is $5110 and the National Paid Leave Family is $2000.
  10. Ensure the Limit Type is Annual, restart each year, and then select Finish.

National Paid Leave FMLA

  1. Go to the Employees menu, then Manage Payroll Items, then select New Payroll Item.
  2. Select Custom Setup, then select Next.
  3. Select Addition, then select Next.
  4. Give your pay type a name, such as National Paid Leave FMLA, in the text field and select Next.
  5. Select COVID-19 Expenses (or whatever you named the expense account) as the expense account, and then Next. 
  6. In the Tax Tracking type window, select the paid leave type, then select Next.
    • For leave taken before April 1, 2021, choose National Paid Leave FMLA.
    • For leave taken after April 1, 2021, select National Leave ARPA - FMLA.
  7. In the Taxes window, select Next.
  8. In the Calculate Based on Quantity window, select Neither, and then select Next.
  9. In the Default Rate and Limit window, make sure the rate is at 0 and the limit is at $12,000, select One Time Limit from the Limit Type dropdown, and select Finish. 
    • Note: If you have any employees who were paid FMLA before and after April 1, 2021, update their employee profile with the new $12,000, maximum limit. The amount of FMLA paid leave available reset, effective April 1, 2021.

National Paid Leave - Health Premium

  1. Go to the Employees menu, then Manage Payroll Items, then select New Payroll Item.
  2. Select Custom Setup, then select Next.
  3. Select Company Contribution, then select Next.
  4. Give your company contribution a name, such as National Paid Leave - Health credits, and select Next.
  5. On the Agency for company-paid liability screen, select COVID-19 Expenses from the Liability account dropdown, and select COVID-19 Expenses (or whatever you named the expense account) from the Expense account dropdown, and then select Next.
  6. On the pop-up message to confirm you selected the same account, select Yes. Selecting the same account for Liability and Expense ensures your liabilities aren't overstated.
  7. On the Tax tracking type window, choose National Paid Leave- Health, then select Next.
  8. On the Taxes window, select Next.
  9. In the Calculate Based on Quantity window, select Neither, and then select Next.
  10. On the Default rate and limit window, make sure the rate is at 0.00 and then the limit is 10,000, and select One-time Limit from the Limit Type dropdown, select Finish.

National Paid Leave & Medicare Credit

  1. Go to the Employees menu, then Manage Payroll Items, then select New Payroll Item.
  2. Select Custom Setup, then select Next.
  3. Select Company Contribution, then select Next.
  4. Give your company contribution a name, such as National Paid Leave - Medicare, and select Next.
  5. On the Agency for company-paid liability screen, select COVID-19 Expenses from the Liability account dropdown, and select COVID-19 Expenses (or whatever you named the expense account) from the Expense account dropdown, and select Next.
  6. On the pop message to confirm you selected the same account, select Yes.
  7. On the Tax tracking type window, choose National Paid Leave- Medicare, then select Next.
  8. On the Taxes window, select Next.
  9. In the Calculate Based on Quantity window, select Neither, and then select Next.
  10. On the Default rate and limit window, make sure the rate is at 0.00 and then the limit 0, and select Annual, restart each year from the Limit Type dropdown, select Finish.

Step 4: Confirm you have a new National Paid Leave Credit tax item, or set it up

You should have a new tax item automatically added in your payroll item list called National Paid Leave Credit. If you don't see this tax item, follow the steps below to set it up.  You'll need this to ensure you're tracking the tax credits.

  1. Go to the Employees menu, then Manage Payroll Items, then select New Payroll Item.
  2. Select Custom Setup, then select Next.
  3. On the Payroll item type window, select Other Tax, then select Next.
  4. On the Other Tax window, select National Paid Leave Credit, then select Next.
  5. In the Name used in paychecks and payroll report window, enter National Paid Leave Credit in the text field, then select Next.
  6. In the Agency for company-paid liability window, select the agency you pay taxes too from the dropdown, select COVID-19 Expenses in the Liability account dropdown, and select COVID-19 Expenses (or whatever you named the expense account) in the Expense account dropdown, and then select Next.
  7. From the Taxable Compensation window, select Finish.

Next steps with the FFCRA

  1. Select Employees, then Pay Employees, and start to create your payroll as normal
  2. In the Enter Payroll Information window, select Open Paycheck Detail to make modifications to the paycheck.
  3. In the Earnings window, remove all existing items.
  4. In Other Payroll Items, add the payroll items you set up in the steps above that are applicable to your employee’s situation. Remember, there are different items to use before and after April 1, 2021. (Depending on your company policy you may choose to keep or remove any other deductions or contributions listed, such as 401(k).)
  5. Next to each used:
    • National Paid Leave Employee/National Paid Leave Family: Add the employees’ hourly rate and quantity of hours for the pay period. If your employee is salaried, you must determine their hourly rate.
    • National Paid Leave FMLA: If applicable, add the appropriate amount, review the guidelines at the top of this article.
    • National Paid Leave - Health Premium: Add the National Paid Leave - Health Premium using the same amount as your normal company paid health insurance premium unless it was prorated. Leave your Health Insurance company contribution item as you will still need it to track the amount to pay to your insurance company.
    • National Paid Leave & Medicare Credit: Add the same amount you see under Company Summary next to Medicare Company.
  6. Select Save & Next to repeat for all employees then select Save & Close.
  7. When the checks are ready to be created, select Continue.
  8. Select Create Paychecks.
  9. If you have QuickBooks Desktop Payroll Assisted or direct deposit paychecks, send your payroll information and direct deposit paychecks to Intuit.

Review and claim your tax credits

After you’ve run your payroll with the paid leave, you should be aware of how it affects your taxes.

To ensure you’ve been tracking the leave correctly, you can review your payroll reports to see how many hours you’ve used in these tax credits.

Regulations and guidance from the SBA and the U.S. Department of Treasury on the PPP are evolving rapidly, and the information contained herein be outdated. Please refer to the latest guidance from SBA and Treasury to confirm current program rules. The funding described in this email is made available to businesses located in the United States of America and are not available in other locations. This content is for information purposes only and should not be considered legal, accounting or tax advice, or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Inc. does not warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers should verify statements before relying on them.

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