In an effort to provide employers with additional liquidity, IRS Notice 2020-22 relieves certain employers from penalties associated with not depositing employment taxes — allowing them to retain cash that otherwise would have been used for withheld income taxes, FICA taxes and railroad retirement taxes. Employers excused from the penalty include those paying:
- Qualified sick leave wages and qualified family leave wages, as required by the Families First Coronavirus Act (FFCRA); or
- Qualified employee retention wages, per the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Creditable employment taxes include an employer’s share of the:
- Social Security portion of FICA tax, and
- Social Security and Medicare portions of the Railroad Retirement Tax Act tax.
The refundable credits are reported on the employer’s quarterly Form 941, Employer’s Quarterly Federal Tax Return. An employer may also claim an advance payment of the refundable tax credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19, if their employment tax deposits do not cover the total qualified wages paid per calendar quarter.
An eligible employer will not be subject to a penalty for failing to deposit employment taxes in a calendar quarter if the amount of the deposit is reduced by the total anticipated credits for qualified wages paid by the employer in the calendar quarter prior to the required deposit. The employer also cannot seek an advance credit for the same amount.
The penalty relief applies to deposits of employment taxes reduced in anticipation of the credits with respect to qualified sick leave wages and qualified family leave wages paid beginning on April 1, 2020, and ending December 31, 2020, and in anticipation of the credits with respect to qualified employee retention wages paid on March 13, 2020, and ending December 31, 2020.
Contact Cynthia Pedersen at email@example.com or a member of your service team to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.