Relief From Not Making Employment Tax Deposits

The Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act provide tax credits to eligible employers passed in response to the Coronavirus (COVID-19) pandemic. The IRS has issued guidance providing relief from failure to make employment tax deposits for employers that are entitled to the refundable tax credits provided under the two laws.

Tax relief credits

employer tax creditsEmployers paying qualified sick leave wages and qualified family leave wages required by the Families First Act, as well as qualified health plan expenses allocable to qualified leave wages, are eligible for refundable tax credits.

Provisions of the Families First Act provide a refundable tax credit against an employer’s share of the Social Security portion of FICA tax for each calendar quarter. The credit amount is equal to 100% of qualified leave wages paid by the employer as well as qualified health plan expenses for the calendar quarter.

Under the CARES Act, some employers can claim a refundable tax credit of up to 50% of qualified wages, including qualified health expenses. The maximum amount of the credit is $10,000 per employee over all calendar quarters combined.

Employers are eligible if they are experiencing:

  • A full or partial business suspension due to orders from governmental authorities due to Coronavirus, or
  • A specified decline in business.

Employers paying qualified leave wages or qualified retention wages can seek an advance payment of the related tax credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Penalty waived

The Families First Act and the CARES Act waive the penalty for failure to deposit the employer share of Social Security tax in anticipation of the allowance of the refundable tax credits allowed under the two laws.

IRS Notice 2020-22 provides that an employer isn’t subject to a penalty for failing to deposit employment taxes related to qualified leave wages or qualified retention wages in a calendar quarter, if certain requirements are met.

Deferral of Employer Portion Payroll Tax Payments

The CARES Act allows employers to defer the payment of payroll taxes incurred between March 27, 2020 and December 31, 2020. The deferral applies to the employer portion of social security taxes (6.2% of employer wages up to $137,700) and the employer’s and employee’s share of Tier 1 Railroad Retirement Tax Act tax up to the 6.2% of wages that corresponds with the social security tax. Self-employed individuals may also defer 6.2% of self-employment taxes incurred during this period.

The deferred taxes are due and considered timely paid if 50% of the amount deferred is paid by December 31, 2021 and the remaining 50% deferred amount is paid by December 31,2022.

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