April 3, 2020
The IRS has issued additional guidance and information regarding the employment tax credits that were made available in the Families First Coronavirus Response Act (“FFCRA”) and the Coronavirus Aid, Relief, and Economic Security Act (“CARES”). See the Whitley Penn COVID-19 page (
) for our previous tax alerts regarding these Acts and related IRS guidance.
Employer Tax Deposit Penalty Relief
IRS Notice 2020-22 provides relief from the penalty imposed under Internal Revenue Code Section 6656 for failure to deposit the employer share of Social Security tax. An employer will not be subject to this penalty for employment taxes related to qualified leave or retention wages in a calendar quarter if:
- The employer paid qualified leave or qualified retention wages as required by the FFCRA or the CARES Act in the calendar quarter prior to the time of the normally required deposit;
- For qualified leave wages paid from April 1, 2020 to December 31, 2020, the anticipated credits under the FFCRA exceed the taxes the employer has not deposited as of the due date of the normally required deposit;
- For qualified retention wages paid after March 12, 2020 and before January 1, 2021, the anticipated credits under the CARES Act exceed the taxes the employer has not deposited (reduced by the amount of employment taxes not remitted in anticipation of credits for other leave payments) as of the due date of the normally required deposit and;
- The employer did not file Form 7200 to request an advance payment of credits that were used to reduce its tax deposits (see subsequent discussion).
The total reduction in any required tax deposit may not exceed the total amount of qualified leave wages, qualified retention wages, and qualified health plan expenses and employer share of Medicare tax on qualified leave wages reduced by any such payments previously used to reduce a required deposit or request payment of an advance credit.
Advance Payment of Employer Credits
The IRS recently released Form 7200, Advance Payment of Employer Credits Due to COVID-19. Employers use Form 7200 to request an advance payment of tax credits for qualified sick and qualified family leave wages and the employee retention credit claimed on Forms 941, 943, 944, or CT-1. Employers that use a third-party payer (PEO, CPEO) to report and pay Federal employment taxes are entitled to the credits attributable to wages remitted by the third-party payer on their behalf.
Employers should reduce employment tax deposits (see previous discussion) for anticipated credits before filing Form 7200. The amount of qualified wage payments in excess of the employers’ reduced deposits is eligible to be refunded as an advance payment. Employers should not file Form 7200 to request an advance payment for any anticipated credit already used to reduce payroll tax deposits.
Form 7200 can be filed any time before the end of the month following the quarter in which the employer paid qualified wages. It may be filed multiple times in a quarter. However, Form 7200 should not be filed after Form 941 has been filed for the fourth quarter of 2020 or after Forms 943, 944, or CT-1 have been filed for 2020. If an employer submits Form 7200 that includes an error, it may not file a corrected version of the form. Instead, the error should be corrected when the employer files Forms 941, 943, 944 or CT-1.
A copy of Form 7200 and the instructions are available on the IRS website: