September 2, 2020
The IRS is going to correct penalties mistakenly levied on employers who reduced their tax deposits because they expected to claim some of the new tax credits provided under the Families First Coronavirus Response Act and the CARES Act this year.
“The IRS is aware that a small population of employers that reduced their tax deposits in anticipation of claiming the sick and family leave credits, or employee retention credit, may have received a notice stating there was a failure to deposit penalty applicable to the Form 941, Employer's Quarterly Federal Tax Return, on which the credits were claimed,” said the IRS. “Under Notice 2020-22, employers claiming the new tax credits may reduce their deposits throughout the tax period up to the amount of the credit. However, in reporting the schedule of liabilities on Form 941, the reported liabilities did not match the reduction in deposits for every pay date. In these situations, they incurred a failure to deposit penalty on the difference in the reported liabilities and the reduced deposits (in situations where deposits were reduced by the amount of the anticipated credit(s) in excess of liability for the employer portion of social security for a given pay date).”
The IRS has put in place systems to prevent levying penalties on employers who reduced their deposits in expectation of claiming the new tax credits. Even so, some employers may still have inadvertently received notice of the penalty. The IRS said it’s taking actions to identify those employer accounts and correct them as soon as possible. Employers that have recently received such notices do not need to take additional actions at this time. The IRS advises taxpayers to check for future guidance on reporting liabilities when reducing deposit to avoid receiving additional notices.
The IRS also said it would stop sending out balance due notices until it catches up with the backlog of mail they have received. Since most IRS employees worked remotely in the middle of tax season, the mail was not processed and checks from taxpayers were not deposited. The IRS made both of these announcements on August 24.
Feel free to contact any member of our team at (610) 828-1900 (PA) or (732) 341-3893 (NJ) with questions. You can contact me at [email protected] and Marty at [email protected]. As always, we are happy to help.
Stay safe,
David Gibbs, CPA, CCIFP, MBA
Partner
McCarthy & Company
Source: IRS rolling back penalties on some employers who didn’t deposit enough taxes. Michael Cohn. Accounting Today. August 24, 2020.
Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).
