Notice 2020-22, 2020-17 IRB

In a Notice, the IRS has provided relief (from failure to make employment tax deposits) to employers entitled to the refundable tax credits provided under the Families First Coronavirus Response Act (P.L. 116-127 3/18/2020, Families First Act) and the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136 3/27/2020, CARES Act).

Background—employment tax penalty. Code Sec. 6656 imposes a penalty for any failure to deposit amounts as required by the Code or regs on the date prescribed therefor, unless such failure is due to reasonable cause and not due to willful neglect.

An employer’s failure to deposit certain Federal employment taxes under Reg. §31.6302-1 or Reg. §31.6302-2, including deposits of withheld income taxes, taxes under the Federal Insurance Contributions Act (FICA), and taxes under the Railroad Retirement Tax Act (RRTA) (collectively, Employment Taxes) is generally subject to a Code Sec. 6656 penalty.

Background—credits related to coronavirus relief. Employers paying qualified sick leave wages and qualified family leave wages required by the Families First Act (collectively, Qualified Leave Wages), as well as qualified health plan expenses allocable to Qualified Leave Wages (Qualified Health Plan Expenses) are eligible for refundable tax credits under the Families First Act.

Specifically, Sec. 7001 and Sec. 7003 of the Families First Act provide a refundable tax credit against an employer’s share of the social security portion of FICA tax and an employer’s share of the social security and Medicare portions of RRTA tax for each calendar quarter, in an amount equal to 100% of Qualified Leave Wages paid by the employer plus Qualified Health Plan Expenses with respect to that calendar quarter.

Additionally, under Sec. 2301 of the CARES Act, certain employers experiencing a full or partial business suspension due to orders from a governmental authority due to the coronavirus disease 2019 (COVID-19), or experiencing a statutorily specified decline in business, are also allowed a refundable tax credit under the CARES Act of up to 50% of the qualified wages, including allocable qualified health expenses; this credit is limited to $10,000 per employee over all calendar quarters combined (Qualified Retention Wages).

An employer paying Qualified Leave Wages or Qualified Retention Wages may seek an advance payment of the related tax credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. See IRS issues draft form for advance payment of employer credits due to COVID-19 (04/01/2020).

Background—relief from Sec. 6656. Sec. 7001(i) and Sec. 7003(i) of the Families First Act, as added by Sec. 3606(a) and Sec. 3606(c) of the CARES Act, and Sec. 2301(k) of the CARES Act, instruct the Treasury Secretary to waive the penalty under Code Sec. 6656 for failure to deposit the employer share of social security tax in anticipation of the allowance of the refundable tax credits allowed under the Families First Act and the CARES Act.

Relief from failure to make employment tax deposit. The Notice provides that an employer will not be subject to a penalty under Code Sec. 6656 for failing to deposit Employment Taxes relating to Qualified Leave Wages or Qualified Retention Wages in a calendar quarter if:

  1. The employer paid Qualified Leave Wages or Qualified Retention Wages to its employees in the calendar quarter prior to the time of the required deposit;
    1. For purposes of Qualified Leave Wages, the amount of Employment Taxes that the employer does not timely deposit is less than or equal to the amount of the employer’s anticipated credits under Sec. 7001 and Sec. 7003 of the Families First Act for the calendar quarter as of the time of the required deposit;
    2. For purposes of Qualified Retention Wages, the amount of Employment Taxes that the employer does not timely deposit, reduced by the amount of Employment Taxes not deposited in anticipation of the credits claimed for Qualified Leave Wages, Qualified Health Plan Expenses, and the employer’s share of Medicare tax on the Qualified Leave Wages, is less than or equal to the amount of the employer’s anticipated credits under Sec. 2301 of the CARES Act for the calendar quarter as of the time of the required deposit; and
  2. The employer did not seek payment of an advance credit by filing Form 7200 with respect to the anticipated credits it relied upon to reduce its deposits.

For purposes of employment taxes related to Qualified Leave Wages, the total amount of any reduction in any required deposit may not exceed the total amount of Qualified Leave Wages and Qualified Health Plan Expenses and the employer’s share of Medicare tax on the Qualified Leave Wages in the calendar quarter, minus any amount of Qualified Leave Wages, Qualified Health Plan Expenses, and employer’s share of Medicare tax that had been previously used

  1. To reduce a prior required deposit in the calendar quarter and obtain the relief provided by this notice or
  2. To seek payment of an advance credit.

For purposes of employment taxes related to Qualified Retention Wages, the total amount of any reduction in any required deposit may not exceed the total amount of Qualified Retention Wages in the calendar quarter, minus any amount of Qualified Retention Wages that had been previously used

  1. To reduce a prior required deposit in the calendar quarter and obtain the relief provided by this notice or
  2. To seek payment of an advance credit. (Notice 2020-22, Sec. 3, 2020-17 IRB)

The Notice adds that for employers subject to FICA tax, the credits under Sec. 7001 and Sec. 7003 of the Families First Act are increased by the amount of the employer’s share of Medicare tax imposed on Qualified Leave Wages. (Sec. 7005(b)(1) of the Families First Act) For purposes of the Notice, the increase in credit under Sec. 7005(b)(1) of the Families First Act is treated as a credit under Sec. 7001 or Sec. 7003 of the Families First Act.

Source: Thompson Reuters Checkpoint Newsstand 4-1-20